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Brent good note, also loved the first book and gave it to a young guy just starting out his career. The thought exercise is really interesting to me, and I’m not an FX guy.
Most of that energy growth (especially the gas) is coming from shale, and most of that is in the Permian. So I am interested to see if those lines stay tight as the US shale production wanes. Rig counts and production look to me like they are potentially in a structural decline. It may also be just correlation and not causation. Inflation bringing a flight towards real assets at the same time as a flight to the USD as it’s the cleanest shirt.
Fwiw, I think this makes more sense if you focus on literal oil, not total energy (your second chart) since nat gas is VERY much different than oil (uses, transportation, etc.).
The timing also seems to match better with your flip in correlations. See charts here (OK, this also includes NGLs, etc. but has to be a better than conflating with nat gas):
That said, I don’t really understand why this would have this particular effect. Can you explain your best guess at a transmission mechanism? Like… it’s literally USD/bbl of oil vs bundle of currencies/USD, right?? I could see a disappearance of correlation, but why an inversion?? This is definitely above my paygrade, so pardon if I’m asking dumb questions.
Also from that link:
“The United States remained a net crude oil importer in 2022, importing about 6.28 million b/d of crude oil and exporting about 3.58 million b/d. Some of the crude oil that the U.S. imports is refined by U.S. refineries into petroleum products—such as gasoline, heating oil, diesel fuel, and jet fuel—that the U.S. later exports. Also, some of imported petroleum may be stored and later exported.”
Ok, so US is a net importer of crude oil (and let’s not get started on different types of oil!),
a marginal net exporter of Oil + NGLs + misc other oil-type things, and a more heavy exporter of BTUs.
Not sure if that muddies the water enough, but I’m trying to square the circle here and understand what exactly matters and why. I thought I understood the inverse relation that used to exist between oil price and USD, and now I’m just very confused…
Good point. According to IEA crude demand is basically static, but crude equivalent (which includes NGL) is up. Also there are countries with no/little refineries that we are exporting gasoline/diesel/etc to. I’m not sure if its a wash completely, but at least a portion of our crude imports are going towards those distillate exports.
I think your point about fixing the units correctly would help un-muddy the waters a bit.