Oil Prices and the Death of the Petro Dollar
okay well I’m Lynette Zhang chief market analyst here at ITM trading a full-service physical precious metals brokerage house.
Today we’re going to talk about the death of a petrol dollar but many of you may not actually know what the petro dollar is so let me explain that to you back in when Nixon took us off the gold standard we were in jeopardy they created the SDR to take over as the world reserve currency so all assets would be valued in terms of well up to that point in terms of dollars so Kissinger went over to Saudi Arabia and he created the petro dollar this is where it started you can see that big cut up in exchange for protecting the house of Saudi from their from their enemies all Saudi Arabia had to do was agree to only sell gold in dollars period that’s all they would take for it and considering that at the time they were the largest oil producer that was pretty significant.
We were also their largest customer so that was also significant now the house of Saudi also agreed to invest any excess money oil dollars that they got in in Treasuries so you saw that all right now the reason why I’m saying that it’s the death of the dollar this is the long-term chart on the dollar index and you can see a series of lower lower highs and lower lows which indicate a negative trend well we haven’t really pissed off the world pardon my french but we’ve really made everybody else angry about our manipulation of the dollar so they’re ready for a change anyway in here when the dollar fell to new lows against this basket of currencies in that was a pattern shift and it indicated in my opinion because it was negative something nasty this way comes right now the dollar is trading inside of a range that you could see was created way back there so the world is getting rid of dollars.
They pushed as you can see on this graph you know what’s been happening with oil and right now as of yesterday well that’s put a huge strain on the budget of oil-producing nations you can see that these are all excess dollars that Saudi Arabia generated from oil far more than their budgetary needs but they ran a deficit well that would make sense a year after the crisis but look what happened in and they might not take it to much notice of that but this they noticed and they issued their very first bond the first debt issuance in so that was internal last year in they went international okay so they’re doing whatever they can to boost that up that budget back up because they’re used to a certain lifestyle as we all are but remember all of these excess revenues that they had well what were they doing with them as per the agreement they were buying Treasuries this black line is Saudi Arabia but look at what’s been happening as the price of oil has dropped and they’ve had those budget deficits they have been selling off Treasuries in an attempt to cover that deficit spending in addition in China became the largest energy user globally and the largest customer of Saudi Arabia so is no longer the US and the implications of that is the loss of that petro dollar system where globally in order to buy oil you had to use dollars.
Well we know that China has been reviving their financial position globally this is not completely done yet but it probably is pretty close to complete again in an effort to boost those deficits they are coming out Saudi Arabia is issuing an IPO of their crown jewel Aramco oil and here’s the thing China is most likely going to be bringing the largest IPO ever out and they’ve directed their banks to be a major holder of it majority holder of it so can you see how China is repositioning itself globally financially and moving into what was US territory and they’re not alone because of Russia made the statement that they will they will take their dollars and they will convert them into gold.
Well let’s see they said that in we see what they’ve done since then oh my goodness there you go this is Russia this is China this is Saudi Arabia all those excess when they were running budget surpluses and would have easily been able to buy gold and build their gold reserves they didn’t they bought US Treasury debt that’s what they bought so now as the as the oil market is plummeting and they cannot seem to get it back above that or bucks a barrel which is what they need okay what is really happening Saudi Arabia is forced to get into bed with China and China is taking over the power from the US that is why I said that this is the death of the petro dollar so there are a lot of smart guys back here too so this is a very complicated topic.
I wanted to show you just this little piece like us on Facebook follow us on Twitter subscribe to us on YouTube keep those comments and questions coming but give us a call eight eight eight six nine six four six five three and you be safe out there we’ll see a Thursday bye bye