There isn't a single publicly traded commodity currently that is more expensive than crude oil, in real terms, compared with their all-time-high price, according to Deutsche Bank commodities analyst Michael Lewis, based in London. Lewis recently reviewed agriculture, metal, energy and other commodity prices in relation to each other. If crude oil is currently at 0% price difference in terms of its all-time high, sugar is off 1,165% from its high, U.S. natural gas is off 107% and gold is off 48%. Some of the difference is because of the weaker U.S. dollar and the fact that world oil is traded in U.S. dollars. What if the US$ continues to weaken, what then of oil prices? Lewis reports, "A weaker U.S. dollar would also sustain OPEC’s commitment to target even higher oil prices, in our view." He reports that great bear runs in the US$ have led to great bull runs and that the initial turn in tide produces a dramatic improvement in the dollar, such as 72% the first year. What would it take for the US$ tide to turn now? "In assessing when this is likely to occur we examine what are likely to be necessary conditions to encourage an eventual turn in the U.S. dollar. This would include a dramatic shift in interest rate spreads in favour of the U.S. dollar, a turn in long-term capital flows in favour of the U.S. dollar, a significant narrowing in the U.S. trade deficit. However, these seem a distant prospect." When will the US$ bear run turn? "Indeed we find that the current down-leg in the U.S. dollar since 2000 bears a striking resemblance to the decline in the U.S. dollar following the Plaza Accord in 1985. Indeed if one assumes the current U.S. dollar cycle continues to track the 1985-1995 U.S. dollar cycle, then it implies the US dollar only hitting rock bottom in September 2011." --Nissa Darbonne, Executive Editor, Oil and Gas Investor, A&D Watch, Oil and Gas Investor This Week, ndarbonne@hartenergy.com
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