Oil fears cast long shadow over dollar

RYANAIR confirmed this week that it has bought oil forward at a hedge price of $47 per barrel (pb).

That tells a story in its own right and calls into question views that oil prices could edge back towards $40pb in the coming months.

For some economists, declining oil prices support their argument for a rising dollar against the euro and other currencies.

Falling oil prices have traditionally boosted the dollar. That's because it means more cash for discretionary spending being made available to consumers in the world's largest economy. This boosts US economic growth, which in turn gives a charge to the rest of the global economy.

So far so good. It is true the dollar has recovered somewhat of late, but don't count on it continuing.

It's a pretty sobering thought that the US consumes 25% of the 84 million barrels of oil burnt up daily across the planet.

They pay about a quarter of what we pay to fuel their outrageously inefficient cars and they show no mercy when it comes to polluting the planet.

This isn't just a US issue however. Cars and planes are huge contributors to global warming. We are all serious consumers, but the reality for us all is that burning of fossil fuels is turning into both an economic and ecological nightmare.

Midweek crude prices in the US rose $2.50 over fears of oil scarcity towards the end of the year.

Brokers in the US said the concerns resulted in the seventh straight trading session in which crude oil futures rose, lifting prices above $54 a barrel to their highest level in a month.

Optimists argue that oil prices will soften and that scarcity fears are feeding on themselves, preventing prices from softening.

Prior to Iraq, oil was costing no more than $28pb while $40pb is now seen as a quite satisfactory outcome if we ever get back there. Some US experts suggest oil could go back up to the high of $57.27 last seen back in April, if the fears about year-end supplies cannot be assuaged.

That kind of scenario does not augur well for the dollar long-term.

In that context, what the Association for the Study of Peak Oil and Gas (Aspo), a collection of industry figures, politicians and academics, had to say at its annual meeting in Lisbon recently is deeply worrying.

Aspo says global production may be at, or approaching, its height. The world is using more oil than it finds.

New field discoveries are at an all-time low and this has contributed to the current price pressure, it said.

The outcome for the world, if Aspo is correct, is very serious.

Colin Campbell, a geologist and former executive vice-president of oil giant Total, who is now living in Ballydehob, Co Cork, is the driving force behind Aspo.

At Lisbon, Mr Campbell talked about the "dawn of the end of the age of oil."

His choice of language was a bit doom-laden, but his take on the current oil situation appears to justify his pretty grim view of what's in store.

Figures about oil reserves have been totally distorted, delegates were told. The Organisation of Petroleum Exporting Countries (Opec) dramatically "revised" its reserve figures in the 1980s. Kuwait revised its reserves from 64bn barrels to 92bn, UAE from 31bn to 92bn and Iraq from 47bn to 100bn.

These were fictional figures but 20 years later the numbers remain unchanged. In other words, these are the still stated reserves despite the reality that some states have been pumping oil as hard and as fast as they can ever since.

If Aspo is calling this right, there is little chance of oil prices coming down anytime soon.

And on that basis, the outlook for the dollar could also be grimmer than many would concede.