Jun
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Oil: The Global Currency of Choice
Junho 16, 2009 |
Oil: The Global Currency of Choice |
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June 15, 2009 By Bryan Perry, Editor, Cash Machine |
I think you get the picture when I say that converting to a world currency with the visions of Chirac, Chavez, Putin and Soros seems like an idea from outer space.
But I’ve got this feeling in the pit of my stomach that the powers-that-be will keep pushing for this egalitarian world view. They want a situation where wealthy nations subsidize poorer, hugely corrupt countries without accountability for their actions. It would be like America dragging around a huge bag of rocks — a permanent drag on our economy.
Still, the possibility of a single global currency along with the prospect of inflation spiking a year or two out because of the skyrocketing debt and explosion in the money supply creates a good reason for the dollar to lose considerable value.
With the devaluation of the dollar inevitable in the short term, investors are hedging now against the threat of inflation — by investing in crude oil
Oil, Not Gold, Is the Best Hedge Against Inflation
Many would argue that gold is a better inflation hedge than crude oil, and it may well be up to a point. But gold is much less important in its application to how the world functions.
We can do without most of the gold production in the world. In fact, most of the gold that has ever been mined since the beginning of time is still here in some form today, whereas oil is burned up as a daily necessity to fuel the global economy.
Just think about it. Crude oil is a depleting asset in a world that consumes over a million barrels per day. Most of the oil deposits in the world are in geopolitical hotbeds where serious events there can destabilize world trading overnight. Emerging markets are industrializing and pushing up net demand, and oil is seen as an excellent hedge against inflation.
Considering these trends, more emphasis is being placed on crude oil every day by currency traders. Crude oil far outweighs all other commodities in terms of priority as to what currency traders view as a viable alternative asset to own that will protect against devaluation. Because of this, crude oil is already our world currency.
In fact, the leaders of most industrialized nations are in a race to see who can devalue their currency the fastest so as to hopefully jump-start exports. And when the U.S. dollar, the Japanese yen, the euro, the Chinese yuan, the Aussie dollar, the Russian ruble, the Brazilian real and the English pound sterling are all trending lower, oil is the contra-play on crumbling currencies.
This is why I believe oil prices are trading firmly above $50 per barrel in the face of historically high inventory levels.
The world is awash in crude inventory at the present with each weekly inventory report showing no signs of a major drawdown, yet crude prices keep ticking higher. At first glance, one would think that crude prices should retest $35 to $40 per barrel. But if one looks at the deterioration of global currencies, it makes perfect sense why traders and investors are betting on higher crude oil prices.
Why Crude Oil Is Our World Currency
Wars are fought over crude oil, and until other fuels can replace it, more wars will be fought over it. And if there are crises in Iran, Nigeria, Iraq, Russia, Mexico and Venezuela — all oil-producing nations — a lot can go wrong in a hurry for the oil markets, sending prices skyward.
So I believe the price of crude will easily top $100 per barrel again in the next couple of years, and I think we will see oil assets also double in value when the price spikes again.
Considering all of this, you can see why I view crude oil as the global currency of choice. And as the global economy rebounds late this year or next year, demand for energy will rise again, sending prices of crude and natural gas higher.