7/12/2008

Weak Dollar and US Petroleum Reserves Behind Strong Oil Price

Early this year, the price of crude oil surpassed its previous inflation-adjusted peak of $103.76 a barrel (a record established in 1980). Since then, the price of crude has been making new record highs on a regular basis. And that’s not all. On June 6th, it surged by $10.58 a barrel – a record one-day move. This was enough to bring the chattering classes out in full force. They produced a great deal of commentary – much of it unfounded – about what was causing oil prices to go through the roof. They were also quick to condemn the traditional bogeyman – the speculators. Not surprisingly, the finance ministers from the Group of Eight industrialized nations focused on oil prices during their recent two-day meeting in Osaka, Japan.”

“Just what is pushing prices skyward? Surprisingly, the G-8 finance ministers failed to mention the US dollar’s role. Every commodity trader knows that all commodities trade off changes in the value of the greenback. When the value of the dollar falls, the nominal dollar prices of internationally traded commodities, like gold, rice, and oil, must increase because more dollars are required to purchase the same quantity of any commodity. Accordingly, a weak dollar should signal higher commodity prices. And it does.”

Steve Hanke of the Cato Institute looks at the oil market[...]

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[Source: Breaking News from WarOnYou.com - Posted by Mint Dollar- The Federal Reserves Worst NightMare]

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