You Can Only Choose One: Cheap Oil or a Weak Dollar – 09.25.17

 

  • When the price of oil rises to the point of pain, just remember the handy-dandy discount mechanism: a much stronger US dollar.
  •  Glance at this chart of the trade-weighted U.S. dollar, and note the swing highs and lows in the price of oil per barrel around each peak and trough. You can look up historical inflation-adjusted prices of oil in USD on this handy chart: Crude Oil Prices – 70 Year Historical Chart (macrotrends.net)
  • Conversely, when the USD weakens, its purchasing power declines and it takes more USD to buy an imported barrel of oil.The correlation isn’t perfect, of course. Oil was relatively cheap between 1986 and 2003, due to a relative abundance of supply as Saudi Arabia and new fields ramped up production, with two periods of extreme price action: a brief spike higher in 1990 preceding the First Gulf War, and a collapse to $17 in the 1998 Asian Contagion financial crisis.

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