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A Short Tutorial on the High Price of Oil and the Falling Dollar

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As the price of oil heads towards and exceeds $90 a barrel, news stories are replete with explanatory comments tying these new oil price highs to the deterioration in the value of the dollar. Nothing could suit the oil industry more than to have this red herring permit them to effect their well-rehearsed Alfred E. Neuman stance of "who me worry -- I had nothing to do with it." In any case, and as we have all learned, the high price of oil is a pure reflection of the market place, or so the oil industry and its vested allies would have us believe.

Let me run some numbers by you. On January 18 of this year the price of crude oil was quoted on the New York Mercantile Exchange at $49.90 per barrel. On Jan. 20 in his State of the Union address, President Bush vowed to double the size of the Strategic Petroleum Reserve from 750 million barrels to 1.5 billion barrels. Since then there has been no holding back the price of oil -- for this reason, and others having to do with oil industry posturing and restraint of available supply, prices continue to go through the roof in dollar and all other currency terms.

To continue. At mid-January with the price of oil shading $50 barrel, the value of the dollar versus the euro was 129.50 and the dollar index stood at 85.40.Today those exchange values are 143 and 77.50 respectively. In percentage terms that comes to a touch over 10 percent in each instance.

Now compare those changes to the extraordinary jump in the price of oil from January to October escalating from $49.90/bbl to over $90.00/bbl yesterday. This comes to an almost unprecedented jump of 80 percent in such a major industrial commodity over such a short period of time. Far and away leaving the comparable exchange rate differentials of other currencies versus the dollar in the dust. And you had better believe the oil boys will move heaven and earth if they can make the dollar the bogeyman for such a gargantuan move in oil prices thereby keeping the spotlight of scrutiny away from themselves. But more about that in future posts.