{"id":26076,"date":"2017-09-25T05:48:01","date_gmt":"2017-09-25T10:48:01","guid":{"rendered":"http:\/\/olduvai.ca\/?p=26076"},"modified":"2017-09-25T05:48:01","modified_gmt":"2017-09-25T10:48:01","slug":"you-can-only-choose-one-cheap-oil-or-a-weak-dollar","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=26076","title":{"rendered":"You Can Only Choose One: Cheap Oil or a Weak Dollar"},"content":{"rendered":"<h3><a href=\"http:\/\/www.oftwominds.com\/blogsept17\/oil-USD9-17.html\">You Can Only Choose One: Cheap Oil or a Weak Dollar<\/a><\/h3>\n<p><i>When the price of oil rises to the point of pain, just remember the handy-dandy discount mechanism: a much stronger US dollar. <\/i><\/p>\n<p><b>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.<\/b> You can look up historical inflation-adjusted prices of oil in USD on this handy chart: <a href=\"http:\/\/www.macrotrends.net\/1369\/crude-oil-price-history-chart\" target=\"resource\">Crude Oil Prices &#8211; 70 Year Historical Chart<\/a> (macrotrends.net)<\/p>\n<p><img decoding=\"async\" class=\"wide\" src=\"http:\/\/www.oftwominds.com\/photos2017\/USD-trade-weighted9-17b.png\" align=\"center\" border=\"0\" \/><\/p>\n<p><b>The correlation isn&#8217;t perfect, of course<\/b>. 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.<\/p>\n<p><b>Geopolitical crises, wars and supply shocks will move oil prices regardless of the value of the USD.<\/b> That said, it&#8217;s clear that absent such shocks, there is a strong correlation between a stronger USD and lower oil prices (in USD of course) and a weaker dollar and higher oil prices.<\/p>\n<p><b>The reason why is straightforward:<\/b> if the dollar gains purchasing power against other currencies, it buys more oil for each dollar.<\/p>\n<p>Conversely, when the USD weakens, its purchasing power declines and it takes more USD to buy an imported barrel of oil.<\/p>\n<p>(Note that the price of domestically produced oil is largely set on the global marketplace. West Texas crude oil may be a few dollars less per barrel than Brent crude oil, but if the global price skyrockets, so does the price of US-produced crude.)<\/p>\n<p>Since oil and gas are the essential resources of the industrial economy, the price paid by consumers and commercial users matter.<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>You Can Only Choose One: Cheap Oil or a Weak Dollar 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 [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2,3],"tags":[127,184,587,588,839],"class_list":["post-26076","post","type-post","status-publish","format-standard","hentry","category-economics","category-energy-2","tag-charles-hugh-smith","tag-crude-oil","tag-of-two-minds","tag-oil","tag-us-dollar"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26076","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=26076"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26076\/revisions"}],"predecessor-version":[{"id":26077,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/26076\/revisions\/26077"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=26076"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=26076"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=26076"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}