[Frank]

Can someone offer a layman's explanation? I have my own ideas but would like to learn more.

TIA

[mkwin]

The US consumes 25% of the world’s oil and as the dollar falls in value relative to other currencies, other international consumers - who account for 75% of oil consumption - are able to pay more dollars -but the same amount in their own currencies - for the same quantity of oil. Sellers adjust their prices to reflect this or limit production to protect the value of their assets.

The other factor is speculation. Investors buy oil futures contracts because they believe the dollar has further to fall relative to oil and other currencies. This speculation is not just going on in oil but it is, along with gold, silver and agricultural commodities, one of the most popular.

The oil price took of in August/September along with every other commodity. I would guess out of the approximately $40 increase since then, about $20-25 is due to the decline in the dollar. The rest was due to stock drawn downs and the potential war with Iran.

[Frank]

Is this effect reinforced because the US dollar is the "dollar used to buy and sell oil"? Or is this the de facto case because the US represents such a large chunk of the market? Would there be more change if oil were bought/sold using Euros?

Clear, concise answer BTW - thanks.

[sjn]

It could be argued that the value of the dollar is affected by oil prices, or more specifically the energy return on a unit of imported oil. In practice both mechanisms are in effect and are resulting in positive re-inforcement of each other.

[mkwin]

$this->bbcode_second_pass_quote('Frank', 'I')s this effect reinforced because the US dollar is the "dollar used to buy and sell oil"? Or is this the de facto case because the US represents such a large chunk of the market? Would there be more change if oil were bought/sold using Euros?

Clear, concise answer BTW - thanks.

[LastViking]

The USA buck has fallen about 40% since January 2002. When valued against its major trading partners, the decline has been less severe. The devaluation of the dollar affords less purchasing power to the USA's crude trading partners when they use oil revenues to import from nations other than the USA. The debasement has been $21 over the last four years.

Best illustrated by the Barrel Meter at TrendLines: Chart (large) and Barrel Meter

[hironegro]

Value of the dollar doesn't effect the price of a barrel of oil.

[wisconsin_cur]

$this->bbcode_second_pass_quote('hironegro', 'V')alue of the dollar doesn't effect the price of a barrel of oil.

[hironegro]

$this->bbcode_second_pass_quote('wisconsin_cur', '')$this->bbcode_second_pass_quote('hironegro', 'V')alue of the dollar doesn't effect the price of a barrel of oil.

[Tyler_JC]

$this->bbcode_second_pass_quote('hironegro', '')$this->bbcode_second_pass_quote('wisconsin_cur', '')$this->bbcode_second_pass_quote('hironegro', 'V')alue of the dollar doesn't effect the price of a barrel of oil.

[hironegro]

$this->bbcode_second_pass_quote('Tyler_JC', '')$this->bbcode_second_pass_quote('hironegro', '')$this->bbcode_second_pass_quote('wisconsin_cur', '')$this->bbcode_second_pass_quote('hironegro', 'V')alue of the dollar doesn't effect the price of a barrel of oil.

[threadbear]

The diminishing value of the dollar, makes the cost of oil appear more expensive than it actually is. It also encourages speculators to shed dollars and park money in commodities, which drives the price up.

If the dollar was on par with the euro and excess speculation was expunged from the market, oil would still be very expensive, probably around $70.00 per barrel, but certainly not where it is now.

[hironegro]

$this->bbcode_second_pass_quote('threadbear', 'T')he diminishing value of the dollar, makes the cost of oil appear more expensive than it actually is. It also encourages speculators to shed dollars and park money in commodities, which drives the price up.

If the dollar was on par with the euro and excess speculation was expunged from the market, oil would still be very expensive, probably around $70.00 per barrel, but certainly not where it is now.

[threadbear]

$this->bbcode_second_pass_quote('hironegro', '')$this->bbcode_second_pass_quote('threadbear', 'T')he diminishing value of the dollar, makes the cost of oil appear more expensive than it actually is. It also encourages speculators to shed dollars and park money in commodities, which drives the price up.

If the dollar was on par with the euro and excess speculation was expunged from the market, oil would still be very expensive, probably around $70.00 per barrel, but certainly not where it is now.

[hironegro]

$this->bbcode_second_pass_quote('threadbear', '')$this->bbcode_second_pass_quote('hironegro', '')$this->bbcode_second_pass_quote('threadbear', 'T')he diminishing value of the dollar, makes the cost of oil appear more expensive than it actually is. It also encourages speculators to shed dollars and park money in commodities, which drives the price up.

If the dollar was on par with the euro and excess speculation was expunged from the market, oil would still be very expensive, probably around $70.00 per barrel, but certainly not where it is now.

[threadbear]

There's a lot of speculation going on, in all of the commodity markets. Demand has increased, but the run up in price, compared to last year's prices can't be justified purely by demand.

[Tyler_JC]

This has been discussed a hundred times on this forum.