How does the price of oil influence the value of currency?
From an investor's standpoint, if the value of crude oil increases, economies that are oil dependent become more favourable (oil companies will be more profitable).  Therefore, investors will find that country's currency more attractive in the foreign exchange market. Because we need energy in the form of oil.  If more of our money is spent on oil, there is less money to spend on other items especially luxuries like dining out and new cars (ironically) Since there is less money available, the price of other things shift with it and the whole economy moves.  Since less money is available, the value of a single dollar goes up. Basically, it is because we as a species (let alone nations) are unbelievably dependent on having oil at this point in our existence. How do currency markets work? What factors are behind why currencies go up or down?
"This is the best tl;dr I could make, [original](http://www.npr.org/2017/05/24/529852301/boom-time-again-for-u-s-oil-industry-thanks-to-opec) reduced by 79%. (I'm a bot) ***** &gt; Oil producers across the country are watching to see what OPEC does at its meeting in Vienna this week, since the cartel of oil-exporting countries has recently played a big role in turning around a two-year U.S. slump.  &gt; There are more than twice as many U.S. rigs drilling for oil as a year ago, a turnaround that&amp;#039;s felt keenly in places like the Bakken oil patch in North Dakota.  &gt; In the dizzying boom-bust cycle of the oil industry, things were crazy busy here a few years back, when a barrel of oil was around $100. But that led to a surge in production that flooded the market, pushing the price of oil down.   ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6ejcc3/boom_time_again_for_us_oil_industry_thanks_to_opec/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ ""Version 1.65, ~133536 tl;drs so far."") | [Theory](http://np.reddit.com/r/autotldr/comments/31bfht/theory_autotldr_concept/) | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr ""PM's and comments are monitored, constructive feedback is welcome."") | *Top* *keywords*: **Oil**^#1 **Dakota**^#2 **price**^#3 **U.S.**^#4 **Job**^#5" &gt; ever eat paper?  Yeah, of course, plenty of times. Not (usually) intentionally, but sometimes a wrapper will get stuck, etc. Also, it's a good way to get rid of something if you don't have a lighter.  More so when I was a kid and messing around with 'secret notes' and the like but.. ..yeah, I've eaten paper.    Granted, I've probably eaten gold as well, and there are some benefits or health values of gold.. .. within the pseudoscientific / alt-health crowd.. ..not sure I buy into those but. ..it has some value.   But, nothing like paper. Obviously there are different materials used for making paper.. ... lots of barks have a value from a health perspective, a relative nutritional value. Growing the tree, depending on the type, can provide fruit, building materials, etc.. ..with the pulp providing a paper value. So, multiple benefits can come from paper.. ...and, that's just the post-harvest aspect.. well, the case of fruit I guess not.  but, there's the environmental benefits of trees and such as well; habitats for wild life, wind breaks, carbon sequestration. soil health, etc.  Multiple benefits, and that's just from tree-based paper.  If you expand it out to something like, say, hemp paper? well, there's the oil.. ... which can be used for fuel production, various other uses, and, most especially, the health benefits and consumption from it.. ...while the remaining fibers can be used for construction... be it compressed bricks, hempcrete (which has excellent values in strength, durability, insulation, weight-to-strength *ratio*, etc.  And, again, the health benefits of hemp oil... ...argued to be the single 'thing' you can consume solely (+ water) and get 100% of the nutrients you need.. ...in mixed ratios and obviously it isn't as great as other things in concentrations, but.. ..it's extremely nutritious.    Also, the plant is really good for the soil, again, habitats, sequesters carbon, helps to pull toxins and such *out* of the soil for bioremediation. Is quick to grow, grows densely, is durable, has minimal inputs needed, hardy, ... all around a great crop.  and, again, the health benefits of its oil are *combined* with its paper making capabilities. .... and, good strong paper too. has a great weight, feel, durable, can/will last a really long time if properly handled.. ..and has much wider variance *in* 'proper handling' than tree-based paper.  Solid product. You should look into it, ... here, I'll give you some links to help you out.  * [9 Health Benefits of Hemp Oil That You Should Know](http://www.zliving.com/wellness/natural-remedies/9-health-benefits-of-hemp-oil-that-you-should-know)  * [10 Incredible Benefits of Hemp Oil](http://herb.co/2016/10/17/incredible-benefits-hemp-oil/)  * [12 Ways Using Hemp Seed Oil Will Improve Your Health &amp; Your Life](http://www.naturallivingideas.com/hemp-seed-oil/)  A bit sensationalistic in the headlines... and, well, as to be expected I suppose, but regardless, pretty great stuff!   ..and, again, that's just the oil. The post-oil-extraction pulp can still go on to be used for the more-applicable-to-conversation paper.  But, since USD's seem to be the main focus... ...though other countries are progressively (or more-progressively I suppose) utilizing even *more* durable plastic in their notes.. ..but, for USD, still paper.. and, as such, the more durable cotton paper.  Now, comparing cotton to hemp is really... .. [hemp wins nearly every time](https://www.davidwolfe.com/hemp-vs-cotton/)  but... cotton is cotton and, recent headline and social controversy of cotton flower decorations aside.. cotton is cotton. Most everything that I'm wearing right now is made of cotton. It's a nice fabric. Durable, flexible, soft, etc. Good stuff. Not the easiest to work with but, clearly not something the world is in short supply of.  but, that doesn't really address your point though exactly.. Like hemp, you can get cotton oil (or cotton seed oil to be more specific) from the plant while also getting the fibers that you'd need for paper production.   It's a bit of a 'mixed back' and definitely *not* as straight forward as hemp's purported health benefits (and I didn't even *get* into the CBD oil stuff that hemp can provide)... .  * [15 Benefits of Cottonseed Oil](http://www.searchhomeremedy.com/15-best-benefits-of-cotton-seed-oil/)  * [7 Amazing Benefits &amp; Uses of Cottonseed Oil](https://www.organicfacts.net/health-benefits/oils/cottonseed-oil.html)  * [10 Best Benefits of Cotton Seed Oil](http://www.stylecraze.com/articles/best-benefits-of-cotton-seed-oil/#gref)  but, from there, things start to turn a little south, and weren't necessarily all that 'great' to begin with....  * [Is Cottonseed Oil Okay?](https://www.drweil.com/diet-nutrition/nutrition/is-cottonseed-oil-okay/)  * [3 Best and Worst Oils For Your Health](https://www.bonappetit.com/trends/article/3-best-and-worst-oils-for-your-health)   So, I suppose my point is... if I even really have a singular one... is that paper, regardless of source, has at least *some* sort of nutritional value.. or could anyway.  As well, the crops used to produce the paper have the capability of ranging from some medicinal qualities all the way up to a seemingly really beneficial quantity of nutrients and compounds. At worst, the crops provide a habitat for various organisms.   The problem with gold and paper currency is that, in the end, they're both inherently valued by the civilization that deems them valuable.   I mean, take the quantity of gold in reserves around the world. Cross that with the industrial uses of gold (of which there are many) and, in turn, cross that with the artistic value of it.  It's price isn't based on its use... it's based on similar principals *as* fiat (paper... and, increasingly, plastic) currency: society's perception that it has value.  Gold has many properties that are excellent for many applications... superior to most (all?) in certain cases. ...but, that's not why it's valued at its current price.   ..again, it's valued at its current price because of perceived value.  Even from an artistic perspective, the amount of gold used in the Palace of Versailles... for the paint and such, was 'minuscule' given how much of the palace is covered in gold. It was something like just a few ounces because the layering is so thin. Point: if 'the look of gold' was all that people were going for they could easily just use another metal coated in a very thin layer of gold and.. externally, the appearance would be the same effect and the weight could theoretically be even lighter (or heavier). But, people want *more* than 'just the look'. They feel that the gold itself has a value beyond just the 'look'.. ..and, for all intents &amp; purposes, it *does*.   but *only* because they and other people choose to perceive it as having such.  I've traded gold (profitably) for over 20 years. I understand the arguments very well.. ..but, vs food? In the end, the gold is a means not an end. "As others have alluded to but haven't said due to the lack of reputation points to spare, you can take advantage of oil prices by leveraging up and using as much credit and margin as the banks and brokerages (respectively) will lend you. People assume that the correct answer on this forum has to masquerade as conservative financial advice, and this is not advice nor conservative. Futures contracts are readily available, but they are expensive to obtain (like a minimum entry of $4,450). But if this expense is no such object to you then you can then obtain this contract which is actually worth 20x that and experience the price appreciation and depreciation of the whole contract. The concept is similar to a downpayment on a mortgage. You assume ""rock bottom"" oil prices, but fortunately for you, futures contracts will allow you to quickly change your bets from future price appreciation and allow you to speculate on future price depreciation. So although the union workers will be protesting full time after the drilling company lays them off, you will still be getting wealthier. Long Options. These are the best. The difference with options, amongst other speculation products, is that options require the least amount of capital risk for the greatest reward. With futures, or with trading shares of an ETF (especially on margin), you have to put up a lot of capital, and if the market does not go your desired direction, then will lose a lot. And on margin products you can lose more than you put in. Being long options does not come with these dilemmas. A long march 2015 call option on USO ETF can currently be bought for less than $200 of actual cash (ie. the trading quote will be less than $2.00, but this will cost you less than $200), and will be worth $1000 on a very modest rebound in prices. The most you can lose is the $200 for the contract. Compared to $4450 on the futures, or $100,000 (that you don't have) in the futures market if oil really moves against you, or compared to whatever large amount of cash needed to actually buy shares of an ETF needed to make any decent return. These are the most lucrative (and fun and exhilarating and ) ways to take advantage of rock bottom oil prices, as an individual." News about a company is not the only thing that affects its stock's price. There is also supply and demand.  That, of course, is influenced by news, but it is not the only actor.  An insider, with a large position in their company's stock, may want to diversify his overall portfolio and thus need to sell a large amount of stock.  That may be significant enough to increase supply and likely reduce the stock's price somewhat. That brings me to another influence on stock price: perception.  Executives, and other insiders with large positions in their company's stock, have to be careful about how and when they sell some of that stock as to not worry the markets.  Many investors watch insider selling to gauge the health of the company. Which brings me to another important point.  There are many things that may be considered news which is material to a certain company and its stock.  It is not just quarterly filings, earnings reports and such.  There is also news related to competitors, news about the economy or a certain sector, news about some weather event that affects a major supplier, news about a major earthquake that will impact the economy of a nation which can then have knock-on effects to other economies, etc... There are also a lot of investors with varying needs which will influence supply and demand.  An institutional investor, needing to diversify, may reduce their position in a stock and thus increase supply enough that it impacts the stock's price.  Meanwhile, individual investors will make their transactions at varying times during the day.  In the aggregate, that may have significant impacts on supply and demand. The overall point being that there are a lot of inputs and a lot of actors in a complicated system.  Even if you focus just on news, there are many things that fall into that category. News does not come out at regular intervals and it does not necessarily spread evenly.  That alone could make for a highly variable environment. What you want is the average change in rate of the Australian Dollar against multiple other currencies, to even out the effect of moves in a single other currency. People often look at the trade-weighted exchange rate to get an idea of this, as it allows you to look at the currencies that are most relevant, rather than every tiny other currency having an equal weight. I don't think this can be explained in too simple a manner, but I'll try to keep it simple, organized, and concise. We need to start with a basic understanding of inflation. Inflation is the devaluing of currency (in this context) over time. It is used to explain that a $1 today is worth more than a $1 tomorrow. Inflation is explained by straight forward Supply = Demand economics. The value of currency is set at the point where supply (M1 in currency speak) = demand (actual spending). Increasing the supply of currency without increasing the demand will create a surplus of currency and in turn weaken the currency as there is more than is needed (inflation). Now that we understand what inflation is we can understand how it is created. The US Central Bank has set a target of around 2% for inflation annually. Meaning they aim to introduce 2% of M1 into the economy per year. This is where the answer gets complicated. M1 (currency) has a far reaching effect on secondary M2+ (credit) currency that can increase or decrease inflation just as much as M1 can... For example, if you were given $100 (M1) in new money from the Fed you would then deposit that $100 in the bank. The bank would then store 10% (the reserve ratio) in the Fed and lend out $90 (M2) to me on via a personal loan. I would then take that loan and buy a new car. The car dealer will deposit the $90 from my car loan into the bank who would then deposit 10% with The Fed and his bank would lend out $81... And the cycle will repeat... Any change to the amount of liquid currency (be it M1 or M2+) can cause inflation to increase or decrease. So if a nation decides to reduce its US Dollar Reserves that can inject new currency into the market (although the currency has already been printed it wasn't in the market). The currency markets aim to profit on currency imbalances and in reality momentary inflation/deflation between currencies. When you buy a currency via FX market, really you are just exchanging one country's currency for another. So if it is permitted to hold one currency electronically, surely it must be permitted to hold a different country's currency electronically. They don't mention it here, but the crash was due to a 2% imbalance between supply and demand.  It doesn't take much to affect prices.  Given that EVs were 1% of global sales in 2016, and have been growing at 50-100% annually, it shouldn't be too long until electrification knocks 2% off total oil demand.  Will that cause another oil price crash?  Last year's Bloomberg article projected 2023...