The Fed fed oil inflation, not OPEC

With oil moving to well over $100, the instant headline became: Oil at $150? Well, what the hell. I say oil could hit $200. Or maybe not, since it is surely impossible to imagine that the real cause of the oil price explosion, the U.S. Federal Reserve, will actually sit back and watch while its lax inflation policy sends the price of oil, the commodity upon which the United States is more dependent than any other, to economy-crippling levels.

Let us not be fooled by peak oil theorists and others who paint pictures of soaring demand and failing supply, as if the price of oil were actually being driven by strict market forces. There are, to be sure, real supply-demand issues in the energy market, including the growing influence of state oil companies and rogue governments over the supply of oil. But recent oil price moves, as with the last major oil crisis in the 1970s, are about supply and demand all right, but not for oil. It’s the market price for the U.S. dollar.


The price of the U.S. dollar is going down, and not just against oil. The price of a dollar against gold has crashed. Back in 1971, the price of a U.S. dollar was almost 3 troy ounces. Today, a Greenback could be bought on the open market for a fraction of an ounce of gold so small it wouldn’t be enough to gold leaf a coffee cup. The market price for a dollar in oil terms, once at a barrel for $10, is now a couple of gallons for a $10.

OPEC President Chakib Khelil is right. He conceded the price of oil is high in dollar terms. “If the prices are high, definitely they are not due to a lack of crude. They are due to what’s happening in the U.S.” He added: “There is sufficient supply. There’s plenty of oil there.”

National Post