Oil at USD105, everybody it's crying for the OPEC to supply more oil to the market to reduced oil price. However it's pumping more oil will solved the current situation of high oil price?
Pumping more oil former Kuwait Oil Minister might have the answer, "What'', sneered Abdurrahman Salim Atiqi, Kuwait's one-time oil minister, "is the point of producing more oil and selling it for an unguaranteed paper currency?'' He means the USD values depreciation since oil is traded in USD.
That's right what is the point of pumping or selling more oil for an inflated USD currency, the problem here was not producing more oil, it's the falling USD for the pass few years that concern the oil market as a whole since oil was traded in USD. USD it's an unguaranteed paper currency, years of "helicopter money" had destroyed the USD position as a dominant global trade currency. Plus the ever growing current account deficits of close to US700 billion p.a. Critics might point to the recent upside of the USD in global market currency trading, that's because all the major world economy is sliding into recession. Globalisation have spread the US economy weakness or recession into every corner of the world. Being an export orientated nations having your own currency devalued will definitely helps in your overall export market there in turn will slow or revive the local economy through selling your products cheaper overseas by currency comparison.
Falling USD will also push prices of ALL commodities to go higher just in order for it to offset the loses in exchange rate, commodities push inflation happened largely due to falling USD values whereby higher price will continue to happens in order to cover exchanged loses. How much of this commodities price increased come from the effect of falling USD will be remain to be seen, at current scenario, unless Fed's raise interest rates to arrest the decline of the USD, price of oil will be hard to go down in the near future. OPEC will not let oil prices falls into uncharted territories because the cost of oil extraction have been going up for the pass few years due to inflation cause by higher prices of commodities.
Mainly problem was not in the oil price but it's in the "unguaranteed USD paper currency". OPEC will definitely not trade the finite oil for an infinite USD currency ( no thanks to Fed's money printing machine ). With oil production almost at it's peak worldwide, OPEC might have to reduce pumping rather then increased pumping to increase oil prices in order to protects it's future interest.
Another scenario in solving the above problem it's the decoupling of USD as the global oil currency, a worldwide economy nightmare if or when it's happened. Cause the main questions is will the American going to let it happened( decoupling ) without a fight? It aint going to be easy, 90% of the world commodities plus oil is traded in USD!
Therefore bye bye cheap oil.........................buy gold!
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