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Didn't made sense to me. Will love if you add some comments below the blog to explain why oil exporters are forced to lower their prices? If US dollar goes up,

by apexkid 11y ago

Didn't made sense to me. Will love if you add some comments below the blog to explain why oil exporters are forced to lower their prices? If US dollar goes up, then going by all capitalist laws, they should look to make more profit because the demand is constant in each economy. Oil isn't like electricity which is wasted if not supplied.

marcosdumay 11y ago
> Oil isn't like electricity which is wasted if not supplied. To a first approximation, yes, it is. Oil is very expensive to store, and the flow of most wheels can't change on short notice. Over a long time, production does change following price fluctuations, but in short times, it does not.
- easytiger 11y ago
  Correct. And the USA has a multi billion $$ storage project for oil t https://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(United_States) https://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(U...
  - toomuchtodo 11y ago
    That's specifically for defense purposes. A lot of crude is sitting in oil tankers off the coast of Houston waiting for oil prices to increase before delivering.
cuchoi 11y ago
You are assuming that demand is constant, but oil can be replaced by other sources of energy. Whith a high price of the oil there are electricity generatora that do not profit, so they don't generate energy, leaving space for other cheaper sources. Also, it is arguable that other costs, such as car gas rises, some people will use public transportation. This sustitution effect can be applied to many other examples.
- stindle 11y ago
  The example assumes that all other factors (like demand) remain constant. You are correct in saying that a higher oil price will lead some users to switch to a different energy source in some scenarios. The point is to explain why financial commentators say (especially recently) that "the strong US dollar is causing commodities to sell off."
jsmcgd 11y ago
In real terms they haven't lowered their prices. If they had charged the same in dollars, after the dollar had appreciated, they would have in effect been charging their customers more as the dollar is now worth more. By lowering the dollar price, they keep their actual price the same as the dollar is now worth more.

by apexkid 11y ago

marcosdumay 11y ago

> Oil isn't like electricity which is wasted if not supplied. To a first approximation, yes, it is. Oil is very expensive to store, and the flow of most wheels can't change on short notice. Over a long time, production does change following price fluctuations, but in short times, it does not.

easytiger 11y ago
Correct. And the USA has a multi billion $$ storage project for oil t https://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(United_States) https://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_(U...
- toomuchtodo 11y ago
  That's specifically for defense purposes. A lot of crude is sitting in oil tankers off the coast of Houston waiting for oil prices to increase before delivering.

cuchoi 11y ago

You are assuming that demand is constant, but oil can be replaced by other sources of energy. Whith a high price of the oil there are electricity generatora that do not profit, so they don't generate energy, leaving space for other cheaper sources. Also, it is arguable that other costs, such as car gas rises, some people will use public transportation. This sustitution effect can be applied to many other examples.

stindle 11y ago
The example assumes that all other factors (like demand) remain constant. You are correct in saying that a higher oil price will lead some users to switch to a different energy source in some scenarios. The point is to explain why financial commentators say (especially recently) that "the strong US dollar is causing commodities to sell off."

jsmcgd 11y ago

In real terms they haven't lowered their prices. If they had charged the same in dollars, after the dollar had appreciated, they would have in effect been charging their customers more as the dollar is now worth more. By lowering the dollar price, they keep their actual price the same as the dollar is now worth more.