What should OPEC do?

[UndercoverElephant]

FYI, this also comes under the designation:

"crock of ◊◊◊◊"

And, noticeably, you have again failed to explain your reasoning, you have simply arrived in the thread, pronounced that what has been posted is "a crock of ◊◊◊◊", but not actually explained WHY.

FYI, this also deserves the response of :

Why don't you go ◊◊◊◊ yourself?

 

[Darat]

...snip...

Why don't you go **** yourself?

That's against the rules, suggest you edit or risk the mods doing so for you.

 

[UndercoverElephant]

That's against the rules, suggest you edit or risk the mods doing so for you.

Edited.

The guy deserved what he got though. I don't mind people disagreeing with me if they bother to explain WHY, but I have little time for people who just come into a thread and pronounce that what has been posted "is a crock of ◊◊◊◊". Who does he think he is? The Queen? Does he have such a reputation that he can simply make pronouncements, and give no justification?

"This is a crock of ◊◊◊◊!"

Why?

"Because Drooper says so"

 

[Shane Costello]

Originally psoted by JustGeoff:
Any chance you can actually explain WHY you think it is a "crock of ◊◊◊◊", Einstein?

Well I was prepared to give you the benefit of the doubt until you posted this:

(unlike Europe, the US took no action on Kyoto)

Europe talked a good talk, but didn't walk the walk when it came to Kyoto!

While all that is happening, China and the EU will take over as the main engine of the world economy.

The EU as the main engine of the world economy? Even the EU has given up on this aspiration it seems.

 

[UndercoverElephant]

Europe talked a good talk, but didn't walk the walk when it came to Kyoto!

Not entirely true. The population of Europe has at least been psychologically prepared for action to be taken on global warming. There is major investment in alternative energy sources, we already have petrol prices way in excess of those in the US, and we are trying to change our economy to cope with fewer CO2 emissions. OK, so it has only been minimally successful, but at least a start has been made. In the US, emissions are still rising, petrol is still dirt cheap and the public still doesn't realise that GW is actually already happening. You cannot overnight change to a new world where global warming is real and oil is running out. But you have to start somewhere, and Europe started ten years ago. The US remains in denial.

The EU as the main engine of the world economy? Even the EU has given up on this aspiration it seems.

That might change as Americas economic woes become more obvious.

 

[Drooper]

Edited.

The guy deserved what he got though. I don't mind people disagreeing with me if they bother to explain WHY, but I have little time for people who just come into a thread and pronounce that what has been posted "is a crock of ◊◊◊◊". Who does he think he is? The Queen? Does he have such a reputation that he can simply make pronouncements, and give no justification?

"This is a crock of ◊◊◊◊!"

Why?

"Because Drooper says so"

I was going to explain. But I wanted to shake the cage first.

You are undercover elephant aren't you?

 

[UndercoverElephant]

I was going to explain. But I wanted to shake the cage first.

You are undercover elephant aren't you?

Yes.

Are you actually going to post something relevant to the debate or are you simply going to continue waving your arms in the air and making royal pronouncements?

Although I am glad to see my reputation has not diminished in my abscence.

 

[Iconoclast]

Did you have trouble reading the question?

Can't you read?

Depends when I run up against supposedly intelligent people who cannot read a simple question

Why don't you go ◊◊◊◊ yourself?

Why don't you go ◊◊◊◊ yourself?

JustGeoff, I think you'll find all your answers here. I know, I know, go ◊◊◊◊ myself, right.

 

[UndercoverElephant]

JustGeoff, I think you'll find all your answers here. I know, I know, go ◊◊◊◊ myself, right.

Yep, you got it.

If people want to criticise my views and offer their own then they are welcome. But if they turn up in my threads, pronounce that what I have posted "is a crock of ◊◊◊◊", but don't feel the need to back up their pronouncement with actual arguments, then I will tell them where to go.

I don't need your advice on how to make friends and influence people. Thanks, anyway.

 

[Drooper]

OK, firstly, my apologies, I was terribly rude. But I just couldn't resist.

The reason? Well, I just didn't know where to start pointing out all the flaws in you understanding. Also, it takes longer to assemble facts than to compose a rant.

Just a couple.

Errors in fact:

the US is currently printing dollars at a rapid rate...

The US monetary based was growing at an annual rate of 4.8% in the 12 months to March 2004. (source:US Federal Reserve).
This is substantially slower than the rate of growth of nominal GDP presently being experienced in the US, at around 6%. (source:The Bureau of Economic Analysis).
So you are wrong.

... which is causing inflation of the dollar

Technically, the dollar wouldn't inflate. It would depreciate in nominal terms, or alternative appreciate in real terms IF US inflation accelerated.

However, the fact is that the US economy is not inflating. Latest inflation measures show a rate of around 1.5% (source:The Bureau of Labor Statistics.
So you are wrong.

making it [the $US] increasingly worthless against other currencies

"increasingly" worthless?. I think it is obvious that the Dollar is not worthless, so it cannot be becoming "increasingly worthless".

Another response to that might be that freely floating exchange rates (like the Dollar) rise and fall over time under the influence of economic events and policies. The present episode is just onw of those and to date it doesn't even hold a candle to the giration of the US Dollar during the 1980s, following the Plaza Accord.
From its peak in February 2002, the Dollar has depreciated by around 23% on a trade weighted basis. Between March 1985 and December 1987 the Dollar depreciated by 38%. That didn't herald the end of the US economy (there is nothing in economic theory to suggest it would), and neither will the current episode. (source:US Federal Reserve)

This would mean that the dollar would stop being the worlds de facto reserve currency.

The US Dollar tends to be the world's reserve currency because it has the largest, most productive economy with a highly stable system of government and credible monetary policy of very very many years standing. It does not depend on the convention of pricing of oil contracts.

It would mean that as the dollar fell, the price of oil would automatically rise at the same rate the dollar falls, rather than OPEC having to control it with output cuts.

Well, the oil price already rises as the dollar falls. The reason is because OPEC works by setting output quotas through a reference price. For the fixed output, as the Dollar depreciates, the Collar denominated price of oil rises (look at what has been happening over the last couple of years. The same is true of gold; the price of which is fixed daily in $US in a Walrasian market in London.
The currency is just the currency, a numeraire. It doesn't matter whether oil contracts are specified in Dollars Euros, Rupees or Zlotys.

Thats it for now for me.

If I get the time I might move on to your other completely bogus premises regarding the "accelerating collapse of the US economy" and other such nonsense.

 

[Shane Costello]

Originally posted by JustGeoff:
Not entirely true. The population of Europe has at least been psychologically prepared for action to be taken on global warming.

So why haven't their governments lived up to their promises under Kyoto, and why hasn't an overwhelming public response to this failure happened?

There is major investment in alternative energy sources, we already have petrol prices way in excess of those in the US, and we are trying to change our economy to cope with fewer CO2 emissions.

By "change our economy" do you mean "completely wreck it"?

You cannot overnight change to a new world where global warming is real and oil is running out.

At the risk of turning this into yet another GW thread there is no conclusive connection between human activity and global warming. And the search for efficient alternative sources of energy will be slow indeed if measures are put in place that hinder economic growth.

But you have to start somewhere, and Europe started ten years ago.

And for ten years or so Europe's economic performace has lagged far behind that of the US. Not saying there's a connection between this and actions to counter human induced GW, but it's worth pointing this out in light of your other comments about a collapsing American economy.

That might change as Americas economic woes become more obvious.

And Europe can safely ignore it's own problems in the meantime?

 

[Drooper]

But you have to start somewhere, and Europe started ten years ago.

You do know that the European Union is yet to ratify the Kyoto Protocol don't you?

They may have started ten years ago, but they are yet to commit to the game.

 

[UndercoverElephant]

OK, firstly, my apologies, I was terribly rude. But I just couldn't resist.

That's alright, apology accepted.

The US monetary based was growing at an annual rate of 4.8% in the 12 months to March 2004. (source:US Federal Reserve).
This is substantially slower than the rate of growth of nominal GDP presently being experienced in the US, at around 6%. (source:The Bureau of Economic Analysis).
So you are wrong.

Have you seen this?

http://www.markswatson.com/Depression1.html

 

[UndercoverElephant]

So why haven't their governments lived up to their promises under Kyoto, and why hasn't an overwhelming public response to this failure happened?

I'm not sure it has been a total failure. Some countries have made more progress than others. There is a rapid increase in wind power generation in the UK coming.

By "change our economy" do you mean "completely wreck it"?

I mean making it less critically dependent on fossil fuels and consumerism.

And Europe can safely ignore it's own problems in the meantime?

Europe needs to stop squabbling amongst itself and start looking at how it is going to survive in a rapidly changing world.

 

[RichardR]

Well, the oil price already rises as the dollar falls. The reason is because OPEC works by setting output quotas through a reference price. For the fixed output, as the Dollar depreciates, the Collar denominated price of oil rises (look at what has been happening over the last couple of years.

This puzzles me. Could you explain it, please?

Surely the only way they can increase the price is by cutting supply. But they haven't been doing that (until last week, anyway). according to The Economist:

"…industry experts say that OPEC countries have hardly cut output at all in recent weeks. So freely are they still cheating that only Saudi Arabia, the kingpin of the cartel, has much spare capacity"

Considering that most OPEC countries cheat (exceed quotas) regularly, OPEC only counts for about a third of world production, and high $ prices are going to encourage more production not less, I find it hard to see how the oil suppliers are able to charge more to account for the falling dollar.

The Economist gives three reasons why prices are up:

1) the growing economies of the USA and China

2) speculation (energy traders forward buying) see this chart:

3) the US government stocking up its strategic reserve.

Is there something wrong with this logic?

 

[Drooper]

This puzzles me. Could you explain it, please?

Surely the only way they can increase the price is by cutting supply. But they haven't been doing that (until last week, anyway). according to The Economist:

Considering that most OPEC countries cheat (exceed quotas) regularly, OPEC only counts for about a third of world production, and high $ prices are going to encourage more production not less, I find it hard to see how the oil suppliers are able to charge more to account for the falling dollar.

The Economist gives three reasons why prices are up:

1) the growing economies of the USA and China

2) speculation (energy traders forward buying) see this chart:

3) the US government stocking up its strategic reserve.

Is there something wrong with this logic?

Firstly, crude oil is priced in Dollars. That is simply the numeraire. OPEC aim to achieve a stable price by setting what they think is the appropriate level of output needed to achieve the desired stable price.

Now, if the $US depreciates then the Dolar buys less of anything in world markets, including oil. Remember that the supply has been fixed. this means that the price of oil expressed in Dollars will rise. Measured in other currencies, the price will not rise - for example, French buyers would not notice a rise in the oil price, because the Euro would buy more dollars. The thing to remember is that the Dollar is only the numeraire. The "true" price of oil is really the implied purchase price expressed in a weighted average of the currencies of the global consuming countries.

Regarding the logic you lay out, there is nothing wrong with this. It sounds reasonable. Just remember that nobody really knows what has made the price go up, this is just pulling together reasonable explanations that fit the stylised facts. To those explanations you site, I would also add the effect of the depreciation of the Dollar.

 

[Drooper]

That's alright, apology accepted.



Have you seen this?

http://www.markswatson.com/Depression1.html

There is nothing there to support the statement you made about the Fed printing money.

I gave you the official data for the money base (i.e. currency in circulation). That showed that there is only very modest growth in the money base.

The site you link to is a bit alarmist, but highlights a problem in the US economy that has persisted through the recession, namely the credit and money growth. This is NOT a case of the Fed "printing money", but the lending deposit cycle (or money creation process).

I tend to agree that this is likely to prevent the US economy form growing very rapidly over the next 5 or so years and leaves it open to another recession in the near future. However, I think this author is over the top alarmist.

 

[RichardR]

Firstly, crude oil is priced in Dollars. That is simply the numeraire. OPEC aim to achieve a stable price by setting what they think is the appropriate level of output needed to achieve the desired stable price.

So to increase the price (in dollars) they would have to decrease supply.

But according to that Economist article, supply has not been cut (until last week anyway – and that new OPEC quota may not stick).

And OPEC only supplies about a third of world oil supplies anyway. If prices are up (as they are now), surely the suppliers (OPEC and non-OPEC), will produce more, not less?

Now, if the $US depreciates then the Dolar buys less of anything in world markets, including oil.

How can that be, if oil is priced in dollars? Surely if the supply stays the same and demand stays the same, the dollar price will stay the same? I agree that Europe (for example) will pay less in Euros if the dollar falls. But surely the dollar price will stay the same.

 

[Solitaire]

OPEC has been told by the US that it MUST sell its oil in dollars.

Do you have a source for this? OPEC doesn't sell oil to the US anyway.
Oil being a commodity, we get our oil much closer to home. Europ may
be getting oil from OPEC, I'm sure most of Asia does.

The US economy is in trouble, and the US is currently printing dollars
at a rapid rate, which is causing inflation of the dollar, and making it
increasingly worthless against other currencies.

Do you have source for this? Last I heard it was less than two percent.
The dollar has been devalued by a factor of 1.5, which is why things like
chocolate bars now sell for $1.50 at Walmart, but imports only count for
ten percent of the goods we buy.

So what should OPEC do?

Hire JustGeoff to represent them!

Do they want to see Bush re-elected? I doubt it.

No one wants to see Bush re-elected, but he will be.
It's like the drug bill that passed congress, no one who voted for it was in favor of it.

 

[Drooper]

So to increase the price (in dollars) they would have to decrease supply.

If the Dollar was stable.

But according to that Economist article, supply has not been cut (until last week anyway – and that new OPEC quota may not stick).

And the Dollar price has been rising for some time, due to the depreciating Dollar.

And OPEC only supplies about a third of world oil supplies anyway. If prices are up (as they are now), surely the suppliers (OPEC and non-OPEC), will produce more, not less?

OPEC are known as the swing producer. They (more specifically Saudi) have the abiolity to create excess demand or excess supply in the market. No other suppliers have that ability. Also, as someone else on this thread has mentione, not all oil is the same. Middle east oil is light crude, the cheapest to refine and most suitable for petrol production.

How can that be, if oil is priced in dollars? Surely if the supply stays the same and demand stays the same, the dollar price will stay the same? I agree that Europe (for example) will pay less in Euros if the dollar falls. But surely the dollar price will stay the same.

So you agree that following a $US depreciation, every non-dollar buyer will get oil cheaper if the Dollar depreciates. That will create excess demand at the prevailing Dollar denominated price. From Econ 101, excess demand leads to rising prices (in Dollars), until a new equilibrium is reached at a higher Dollar price. QED.