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How Much of the Price of Oil is Due to Dollar Weakness?

Our markets seem very sensitive to the price of oil... to the extent that I read articles about how high oil prices are keeping the economy down. That begs the question... is it "high oil prices" or "weak dollar"? Here it is...

Inflation effect on oil prices

This first graph shows the Price of a Barrel of Oil in North American Pesos... er, I mean US Dollars in red, and the Price of a Barrel of Oil in Euros, normalized to US Dollar/Euro exchange one year ago.

Oil price and dollar devaluation

This graph shows the variation in $/Barrel.  In other words, this is the component of the price per barrel of oil due strictly to further devaluation of the dollar relative to the Euro (and, in reality, a whole basket of other currencies).

Barrel of oil

This chart just relates it to the percentage of the price per barrel of oil that can be attributed to dollar devaluation... also known as dollar inflation. Is it any wonder the Chinese are worrying about their trillion dollar holding of dollars? 20% of it has magically disappeared in the last year, at least in regards to buying energy by this Inconvenient Truth.

By. Allen Gilmer




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