Oil and Treasuries - Comparing Trillions
Wow - oil hit $123 a barrel in trading yesterday and the slope of the trend is only accelerating. I can only think that some Asian central governments have caught on to the Fed/Treasury’s preference for cheap dollars and have decided instead to shift their reserves to something more tangible.
Some statistics:
- Chinese central bank holdings of US Treasuries: $490M (peaking)
- Japanese central bank holdings of US Treasuries: $586M (peaking)
- Total US treasuries outstanding: $2.4trillion (increasing 15%/yr)
- Global oil production: 31billion barrels per year
- Value of global oil production today: $3.6trillion
These are comparable numbers. If holders of treasuries were to shift 10% of their portfolios into oil stocks this year, it would account for a 7% increase in world oil demand, surely enough to swing prices.
There’s a lot of estimates that suggest that $100 oil will lead to new technologies, but these are probably years out, so the short term oil price could be much higher.
It seems safe to bet on a weak dollar, and in that context, short-term $160/barrel oil isn’t out of the question with a little panic. I still dont get why treasuries are yielding so low. You would think that banks would demand higher returns because of the downside risk on the dollar.