Oil hits $147 per barrel
On July 11, 2008, oil futures peaked at $147.27 per barrel — the all-time nominal high, set six weeks before the financial system began visibly cracking and five months before Lehman fell. The 2008 oil price was driven by a combination of strong Chinese demand, supply concerns out of Iraq and Nigeria, and intensifying speculative flows from financial investors who had begun treating oil as an asset class. Within five months, oil was below $40. The peak demonstrated something new about the petrodollar era: financial speculation could push energy prices to levels that disconnected from physical supply-demand fundamentals — and that disconnect could itself contribute to the macroeconomic stress that triggered the broader 2008 crash.
Crude oil ETFs (USO, the largest, launched 2006) and similar passive vehicles pulled retail flows into oil futures for the first time. The contango losses these vehicles experienced as they rolled near-month contracts demonstrated, painfully and publicly, the difference between holding a commodity and holding a financial wrapper for one. The retail oil-investing phenomenon never recovered to 2008 scale.
04 · The Petrodollar
When Nixon closed the gold window in August 1971, the dollar lost its commodity backing. It immediately gained a new, less visible one. In 1974, Saudi Arabia agreed to price all its oil exports in U.S. dollars in exchange for American security guarantees and a Saudi commitment to recycle oil revenues into U.S. Treasury bonds. Every country that wanted oil now needed dollars. Sovereign wealth funds emerged as the warehouses of recycled petroleum money. The petrodollar system was as load-bearing for the post-Bretton-Woods financial order as gold had been for the previous one — and far less visible.
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