The FX Bootcamp Guide to Strategic and Tactical Forex Trading

PETRODOLLARS

Need yet another reason to focus on the USD? Let me introduce you to the petrodollar.

Did you know that all oil purchases from OPEC are paid for in U.S. dollars? For example, if South Korea wants to buy oil from Saudi Arabia, it has to sell its local currency and buy U.S. dollars, then use those dollars to buy oil from OPEC. If Norway wants to buy oil, it has the sell its local currency and buy U.S. dollars.

Any country that buys oil from OPEC, must do so using petrodollars. A lot of countries need more oil than they can produce, and a lot of countries buy their oil from OPEC. That means a lot of oil purchases and a lot of USD being bought just for that purpose!

Petrodollars Defined

Here’s the complete definition provided by Investopedia:

 

Petrodollars: The money that oil exporters receive from selling oil and then deposit into Western banks. Petrodollars are also known as petrocurrency.

 

In other words, petrodollars is a term used to define money that oil-producing Middle Eastern countries and members of OPEC receive as revenue from Western nations, then put back into those same nations’ banks.

For example, if Saudi Arabia were to receive money from the U.S. for oil and it then put the money into a U.S. bank, that deposited money is referred to as petrodollars.

TABLE 7.6 Trading the Four Major Currency Pairs When USD Is Falling