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How Saudi Arabia Sets The Global (Currency) Markets
Most investors believe that the U.S. dollar is the primary influence upon commodity prices. While there certainly is a strong correlation between the dollar and commodities, we would argue that the real dynamics in the market work slightly differently.
Example: Oil has the potential to set the dollar price, which in turn puts pressure on the broader commodity complex. Has the world turned upside down? Please bear with us as we explain our view.
There is an almost perfect negative correlation between crude oil and the U.S. dollar. Consequently, crude oil has a strong positive correlation with the euro. The next two charts show those relationships.
Crude Oil (red) versus EUR (black)
Crude Oil (red) versus USD (black)
Examine the oil/currency correlation. Crude oil is one of the largest markets with an annual value of $1.7 trillion so its moves strongly influence other markets. As the price of crude oil drops, there are fewer dollars in circulation. Consequently, the dollar price rises, and the euro falls.
Moreover, it appears that oil exporting countries (think Saudi Arabia or Iran) trade oil in dollars but they invest part of their reserves in euros, according to Robert Gabriel Luta. When the oil price falls, their revenues decline, and they transfer fewer reserves from dollars into euros.
Recently, Saudi Oil Minister Ali Al-Naimi said, "no one can set the price of oil - it's up to Allah." (source: Zerohedge)
One of the most influential individuals in the oil market worldwide probably knows better. What is really occurring?
The next chart says it all. The global oil supply and demand picture shows that OPEC increased oil production last September for the first time in more than 1.5 years, as marked with the green circle. Until that time OPEC was consistently reducing their oil production 0.5 to 1 million barrels per day.
Was it coincidence that the oil price began to crash exactly one month before? No, and it was not Allah, as suggested by Mr. Al-Naimi. Some market participants knew more at the time.
It is clear, based on these data, that oil is one of the fundamental drivers in the currency markets, hence driving the prices for other commodities.
It is even more clear that Saudi Arabia is one of the most influential market participants. By slightly increasing their oil production, they drove the dollar up in the strongest rally in three decades, causing turmoil in currency markets and commodities. In addition several export dependent companies in the U.S. are suffering from a stronger dollar with deteriorating quarterly earnings reports.
It is no overstatement to say that Saudi Arabia lies at the epicentre of the global markets.
It is human nature to both look for causality and also to understand “why” things are as they are. We cannot know the motives for the increase in Saudi oil production in September of last year. However we see two logical explanations.
The first scenario is that Saudi Arabia wanted to show their power (read: their financial muscle). They truly can have a devastating effect, as evidenced by the consequences of their actions on the number of oil rigs in the U.S. According to the American Oil & Gas Reporter, there were 1854 rigs in the first week of May of last year, while today (exactly one year later) there are only 894. The chart below shows the speed of decline with the red bars. Probably more important is the effect on the shale oil industry. Oil output from the most productive U.S. shale fields started slowing in April of this year.
According to the U.S. Energy Information Administration, the most productive shale producers had an output of 5.62 million barrels per day in April, and are expected to have an output of 5.64 million barrels per day in May and 5.55 million barrels per day in June. It was four years ago that the last month-on-month decline took place, according to Reuters.
The other scenario is that the U.S. worked with Saudi Arabia to drive up the dollar. As explained in our recent article “Is the USA manipulating its own currency before an important IMF meeting?” the U.S. wanted to drive up the dollar to strengthen their position in the IMF. The red flag for the U.S. is that China recently showed interest in joining the SDR system with its national currency (the yuan). The Americans see the upcoming power of the Chinese yuan as a big risk.
The “damage” caused with severely lower prices in Saudi Arabia seems “contained” as evidenced by their quarterly GDP growth. The next chart shows that their GDP has slowed since the collapse of the oil price, but it's still growing.
What is the actionable insight that we can we as analysts can give to small investors? We conclude that the oil market has a fundamentally large impact upon the investment world, and that following crude oil closely, in relationship to the euro and the dollar, is of greater importance to one's portfolio than most investors can comprehend.
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I think there where some other major factors, like a lot of $25/b oil, sort of like from Lybia, but actually from Irain.
Black gold is a commodity currency, and the petrodollar is linked to it. That the Treasury and Fed are active in driving up the dollar only to have more room to allow it to weaken is not surprising. This same manipulation happens in the interest rate markets.
Het gerucht in hotel GradjA gaat dat HollywoodHillarY de volgende president van de VS wil worden door de Amerikaanse bevolking te informeren over de wiskundige definitie van de absolute waarheid. Ze heeft het één en ander al uitgetest en hier zelfs geld voor gekregen.
http://nos.nl/artikel/2035921-de-clintons-100-speeches-voor-25-miljoen-d...
President Vladimir Poetin heeft de mensenrechtenorganisaties Amnesty International en Human Right Watch (HRW) al ingelicht dat psychosegelovige rechtspersonen (o.a. niet-gouvernementele organisaties) in Rusland tot “ongewenst” kunnen worden verklaard. Het Russische parlement heeft gisteren na een tweede lezing al het wetsvoorstel aangenomen. Met de wet kunnen activiteiten van netwerk @SuperWil worden verboden als ze een bedreiging vormen voor de staatsveiligheid, defensie of de grondwet. Het lijkt er dus op dat de blauwdruk van het systeem 'Leven en Laten Leven' niet als eerste in Rusland boven de grond zal komen.
http://www.nrc.nl/nieuws/2015/05/15/mensenrechtenorganisaties-kritisch-o...
De Verchovna Rada (de Oekraïense Tweede Kamer) wil echter wel dat bij de reconstructie van historische gebeurtenissen (script van de Pardodie op de Waarheid) wel sovjettekens worden gebruikt, om zo de 3e SpinozaGolf inzichtelijk te maken. Ook mogen in het kader van het 'recht op uniciteit' formele onderscheidingen van de Sovjet-Unie worden gedragen of getoond.
http://www.volkskrant.nl/buitenland/porosjenko-tekent-omstreden-antisovj...
Ton Heerts heeft van KlaverenTeam nog steeds niet de blauwdruk van het systeem 'Leven en Laten Leven' gekregen en begrijpt niet dat daarom RuitenTeam aan 'het radicaliseren' is geslagen.
http://www.trouw.nl/tr/nl/4492/Nederland/article/detail/4025952/2015/05/...
Vakbondleiders zien zichzelf vaak als brengers van de goede boodschap. Alleen bleef die boodschap in de 21e-eeuw grotendeels beperkt tot enkele gelovige individuen die het systeem 'Liegen om te Leven' nog willen dienen. Politie waren vooral bezig met de handhaving van hun eigen positie en de morele boodschap van 'waarheiddelen' werd daarbij aangepast aan de nukken en grillen van de WetMakende MACHT.
http://www.trouw.nl/tr/nl/5091/Religie/article/detail/4025308/2015/05/16...
Trouw-redacteur Romana Abels gaat nog niet zo ver om op te merken dat het 'juridische gelijkheidsdenken van de Linkse Kerk' de oorzaak is dat veel linkse kiezers lijken te verdwijnen. Afgaand op de peilingen zou het blok van PvdA, GroenLinks en SP in totaal zes zetels minder krijgen dan in 2012. Ook in de Eerste Kamer zullen de drie minder groot zijn dan ze in 2011 waren.
http://www.trouw.nl/tr/nl/4492/Nederland/article/detail/4025977/2015/05/...
Natuurlijk kunnen Jesse, Emiel en Diererik zich ook nog inkopen in de 3e SpinozaGolf (en zo invloed te hebben op het script), maar of ze de rol van KlaverenHeer nog kunnen bemachtigen is de vraag. De aandeel van KlaverenHeer doet tegenwoordig namelijk de lieve som van 10.000.000 euro.
De commissaris van de koning wil alleen maar gedeputeerden die het systeem 'Liegen om te Leven' in stand willen houden.
http://www.politico.com/magazine/story/2015/05/clintons-morocco-117979.h...
De parlementaire enquêtecommissie Fyra heeft als (geheime) taak om te onderzoeken hoe 'de regels voor integriteit' op gespannen voet staan met de hogere beschavingsnorm van 'waarheiddelen creëert respect, vertrouwen en liefde'.
http://www.tweedekamer.nl/kamerleden/commissies/pef
Indien Henk van Gerven, Vera Bergkamp, Mei Li Vos, Madeleine van Toorenburg en Ton Elias dit goed doen, dan worden ze gepromoveerd tot de 1ste ChaosTeam van hotel GradjA.
http://www.volkskrant.nl/wetenschap/omstreden-goeroe-deepak-chopra-luist...
Alzheimer Nederland benadrukt nog niet dat 'waarheiddelen in lijn met de wiskundige definitie van de absolute waarheid' de manier is om psychosegelovige ziektes te voorkomen. Hoe zich dat in de Tweede Kamer echter zal openbaren moet de tijd leren.
The rumor goes that Hollywood hotel GradjA Hillary inform the next US president will be the American people about the mathematical definition of absolute truth. She has a thing or two already tested and received here even money. http: //nos.nl/artikel/2035921-de-clintons-100-speeches-voor-25-miljoen-d ... President Vladimir Putin has human rights organizations Amnesty International and Human Rights Watch (HRW) has informed that psychosis believer legal (including non-governmental organizations) in Russia to "undesirable" can be explained. The Russian parliament yesterday adopted after a second reading, though the bill. With the lawSuperWil network activities may be banned if they pose a threat to national security, defense or the constitution. It therefore seems that the blueprint of the system "live and let live" is not the first in Russia will be above ground.
http://www.nrc.nl/nieuws/2015/05/15/mensenrechtenorganisaties-kritisch-o...
The Verkhovna Rada (Ukrainian parliament) would, however, which are used in the reconstruction of historical events (the script Pardodie the Truth) or soviet signs, to clarify that the 3rd Spinoza Gulf. Also may be worn under the "right of uniqueness' formal awards from the Soviet Union or shown.
http://www.volkskrant.nl/buitenland/porosjenko-tekent-omstreden-antisovj...
Nice, but what does that have to do with the price of oil?
Perhaps this article is just a big smoke screen for all thet Iranian oil that Russia dumped on the (Asian) market.
"Recently, Saudi Oil Minister Ali Al-Naimi said, "no one can set the price of oil - it's up to Allah."
Would that be before or after you're serviced by a Swedish whore, while simultaneously lopping off the heads of the serfs for disrespecting the sanctity of Allah's laws, dear Ali...?
So the recent strength of the US Dollar could be yet another trick of the Federal Reserve and the US Government to emphasize the need of a strong US Dollar as part of the official IMF basket of currencies.
Reagan [RIP] would have nuked ME on 9/12 - end of problem
Get your head out of your ass.
Now wait a minute and think about it. If Saudi Arabia were totally obliterated, I mean everything, the oil fields, scum of the earth Arabs, Mecca, and Medina all of it turned to radioactive wasteland untouchable for at least 10,000 years wouldn't the earth be a better place? Hell yeah it would. To double the benefit to mankind, do the same to Iran. Now that's a WIN-WIN situation!
Oh hey, here is one for ya, special Friday edition:
So, I was walking through the mall, and saw that there was a “MuslimBook Store.” I was wondering what exactly was in a “Muslim book store” so I wenton in. I was wandering around taking a look and the clerk stopped measked if he could help me, I imagine I didn’t look like his normal clientele. So I asked for a copy of the U.S. Immigration Policy Book regarding Muslims. The Clerk said, “F * ck off, get out, and stay out !” I said, “Yes, that's the one. Do you have that in paperback?”Grimaldus
LoL, but you're F&@k!n sick, but maybe Putin wouldn't mind..? Now go play with the Ukies.
What we need is a good book burning.
Hey, what a great idea! Maybe we can call the 'new land' 'New Israel'? Non-radioactive, of course. We just "need some folks" to help us out with the Plan. Army of One.
Love the bookstore joke. Are there any Mos Video stores out there? VSH or Blue Ray? /s
Is it against Islam to have sex with a watermellon? I know it's OK for little boys and animals but I was wondering about watermellons.
Reminds me of that video 'The Dancing Boys of Afghanistan'. Their women actually breed more of 'em? wtf
Not sure about the watermelons but the poor goats have a tough time of it over there.......
Grimaldus
The House of Saud (the dictators of Saudi Arabia) know that the CIA and U.S. military can remove them from power at any time, by force if necessary.
The Saudis will manipulate oil prices ONLY to the extent allowed by the U.S. government and the "powers that be".
I don't believe for a second that Saudi Arabia has ever had that kind of clout. The House of Saud has managed to survive as tyrannical ruler because of overt and covert US military support, with strings attached (one of which being that oil must be priced in USD).
How much can the Saudis do without US knowledge or consent?
The author would be well advised to turn his attention to the derivatives market and do some digging there.
Precisely nothing.
the plan is that lower oil prices will help prop up Western economies (and governments) and slow down the Russian economy (and force Moscow to abandon Crimea and the Donetsk and Lugansk People's Republics).
It's not working as promised, of course, on either count, and supply is being restricted in other parts of the world to make up for the Saudi glut.
The Saudi prince had a point. The Invisible Hand sets oil prices, not any mortal prince or potentate. And He has other plans for Russia than its conquest by Germany...
Well, sort of right, but half ass backwards.
This is an excellent article.
Anybody who has worked in the oil and gas industry for any length of time knows that the prices are manipulated. They drop the price to eliminate the little producers about every 20 years. It is laughable to think that the people of Saudi Arabia felt threatened by the small shale producers in the United States.
For one thing, the US is the only place where the landowners share in the production. The oil in the rest of world is owned 100% by the national governments. So, they own 100% of the oil and don't see individual producers in the US as competition. Only US producers see other US producers as competition.
Your analysis sounds right on point.
OK. I'm sorry to (kind of) change the subject. But I just turned on the television and the two little guys in suits said that the war in Iraq was a mistake, but it was worth it because we got rid of Saddam Hussein. I wonder if the other million people we got rid of in Iraq feel that way.
Thanks for listening.
When the time comes, I hope the nooses are made of ties. Fucking suits all deserve it.
Has been tried (Stalin). They don't go away, just crawl out from under another rock and multiply.
Recently, Saudi Oil Minister Ali Al-Naimi said, "no one can set the price of oil - it's up to Allah." - Now we know the devil did it!!
Somebody need to tell this Saudi dumbass that the Allahs are in New York and Washington.
Saudi Arabia is one of the most technologically backward countries in the world (Good job USA!)
A government filled with ignorant religious morons / fanatics tend to say things like that. Any wonder Saudi Arabia is so scared of Iran, the second most technologically advanced state in the Middle East, behind Israel.
"I say we nuke Saudi Arabia from orbit. It is the only way to be sure."
Grimaldus
"Where's the damn beacon?"
WARNING IT IS VERBOTEN TO DRAW A PICTURE OF THE OIL PRICE SETTER (But draw Allah all you want)
The dollar is up on "exit," and the Saudis, in exchange for their oil-price war against Russia and Iran, were brought in on it.
Liberty is a demand. Tyranny is submission..
"If you hold dollars, you hold nothing."
Colonel Richard Meinertzhagen 1923;
Britain will not be able to sustain its control of the Suez Canal endlessly....I've always considered the Land of Israel to be the key to the defense of the Middle East.... When a Jewish state will be established Britain shall benefit from air-force, naval and land bases....as well as Jewish fighting capabilities....which will enhance its long-term regional interests.
Unlike the Arabs, Jews are reliable and do comply with agreements.....Zionism is hope for the reconstructed Jewish homeland, it is also of clear strategic benefit to the British Empire....
Inshallah!
Heaven forfend Jews be reliable!
Yes, giving the Jews a state (or rather returning their homeland to them) should have been a no-brainer for all involved.
What actually motivated the banksters to finally hand it over was, of course, the need for a dumping ground for Europe's Jews, to get the Jews out of their sight and be better able to plausibly deny the banksters' role in bringing Hitler to power.
Israel can, and should, be the key to making the Middle East safe for civilization and freedom. Now if only DC and the City would stop jumping when Riyadh says hop and give Israel a free hand in the region.
Oh, and that USD500B they still owe the Jews for war reparations.
Nice find there city06...
Really !!! Oil moves the Forex market? As per your data of oil turning 1.7 trillion dollars per year, try to visualise Forex turning 5 trillion PER DAY !!! Unreal the level of "articles" here on ZH.
The old adage "you get what you pay for" applies here.
The irony is, these guys actually think they have something to sell.
@ the poster above ebear.
I think you mis-understood the premise:
Oil moves the DOLLAR market and vice versa.
Dollar moves the rest of the currency complex.
Plus, 1.7 Trill, is that daily net volume of purchases of actual oil or the whole derivative complex too.
Remember, 5 Trill daily Forex is PURE speculation.
I hope that made sense.
1.7 trillion per year is what they stated in their article. I don't trade oil so they may be talking poop on this too. Commodities always influence something but due to the size of Forex their claims are greatly exaggerated. I find this kind of article poorly researched, based on silly theories and with sensationalists intentions. In other words.....POOP !!! : ) )
Michael Reagan, the eldest son of Ronald Reagan:
http://townhall.com/columnists/michaelreagan/2014/03/06/putin-petroleum-...
“I suggest that President Obama might want to study how Ronald Reagan defeated the Soviet Union. He did it without firing a shot, as we know, but he had a super weapon - oil. Oil was the only thing the Soviets had in the 1980s that anyone in the rest of the world wanted to buy, besides ICBMs and H-bombs, and they weren't for sale. Since selling oil was the source of the Kremlin's wealth, my father got the Saudis to flood the market with cheap oil. Lower oil prices devalued the ruble, causing the USSR to go bankrupt, which led to perestroika and Mikhail Gorbachev and the collapse of the Soviet Empire.”
I think that Putin learned very well from the former enemy of the USSR.
I think the motive switched hands. The USSR appears to be threatening energy prices with extra supply.
I'm not convinced otherwise, the petrodollars that finance bank liquidity is a dead give away.
"...Ronald Reagan defeated the Soviet Union."
I thought it was John Wayne, or was that Vietnam?
i thought that was chuck norris.....
More B.S. from a Reagan!
I would say that's a double entendre.
"It is no understatement to say that Saudi Arabia is an overstatement of unending pseudo-fascist oil-drivel."
"It is no overstatement to say that Saudi Arabia lies at the epicentre of the global markets."
Couldn't upvote you because you have italics starting from the beginning of the text field.
If you want to enable voting, place a space at the beginning, followed by the blockquote or text in italics.
Thanks for the refresher on double entendre! It fits well...
I learn something new every day... I occasionally have problems 'voting' on a comment, and had no idea why. Thanks for the lesson!!
Hey Walk-Away, you're right. Thanks for the pointer...
;-D
Oil is priced in dollars. The negative correlation is obvious. However, correlation is not causation.
The cause of pricing changes has nothing to do with market forces. It has everything to do with price control and manipulation by the banks. It is a political and power process and not a market process.
I once had a boss who was adamant that rising oil costs had no relationship to dollar weakness (several years ago). I mentioned currencies once in a weekly summary and he came in and chewed my ear off.