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Linking the Oil Price to the Euro
JOHANNESBURG - According to Jean Temkin (AllAfrica), as the price of oil rises, it is gradually being realised that the reason may be because of the 14 Opec countries (Organisation of Petroleum Exporting Countries and the collective production of two-thirds of the world's oil. As the dollar dips against the euro, so do their currencies.It's been suggested that these countries might rather link to the euro, and, given that several regard the US as an enemy, this would make better sense.
The chart would reveal two plottings to show the exchange rates. The heavier plotting is the euro/dollar (how many dollars are needed to buy a euro) and a lighter plotting is the dollar/euro (how many euros are needed to buy a dollar). The plottings show that since the birth of the euro, the dollar has lost substantial ground against the unit . For oil the chart uses the price of Brent crude because although the UK is not an Opec member, Brent is used as a benchmark.
Over the past seven years, there has been some correlation between the rise in the euro's value against the dollar and oil. Standard deviation channels have been placed over both the oil price and the euro/dollar plottings. The solid line channel shows how the oil price has risen, and the dashed channel how the euro has gained against the dollar. The elevation of the euro is less steep than that of the oil price but there has been close correlation in the past six months. Both oil and the euro/dollar are now near the upper edge of their channels showing both are overvalued.
Food price inflation is directly linked to oil, as it's used by human and animal food producers. Once produced it must be transported. Because the price of oil is high, the farming of crops that can be turned into ethanol has reduced the availability of food for humans and animals . Not surprisingly, the uproar of a few years ago about genetic modification, which can produce more crops on less land, has ceased. Not directly linked to oil, surveys show that meat consumption in China and India has risen, resulting in demand outstripping supply.
The market had already begun an about-turn ahead of the interest rate rise. The emphasis switched from industrials back into resources many of which are giving new buy signals. Two exceptions were Metair which shot skywards, despite its directors selling shares, and Dorbyl's rise on the sale of property and disposal of a 50% interest in Guestro.
Coal is a favourite in the mining sector, but as coal shares are mostly not well traded, Anglo and Billiton are better bets. Coal contributes 11% of Anglo's profits and platinum 23%. Anglo's next count is to R568 and there's a longer-term count to R690. Coal contributes 9,25% of Billiton's profits, steel 9,15% and petroleum 11,66%. Billiton's next count is to R321. The gold price moved better but gold shares remain lethargic. The platinum price jogs sideways but Angloplat, with an unfulfilled count to about R1650, looks set to challenge its record high.
Chemicals won ground with Omnia, AECI and Afrox giving hesitant buy signals. Afrox has a new count to R308. In media, Naspers with a count to R186, is rushing towards an overbought position but may gain a bit more in its current cycle.
View the AllAfrica story by clicking here.
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