Deficits, Dollar, Energy, Federal Reserve, Game Theory, Individual v. Collective, Live and Learn

Newsflash! Oil is Inversely Related to the Dollar

I will sleep well tonight knowing President Obama committed Department of Justice resources to go after oil speculators. They must be the reason we’re paying $4/gallon at the pump. It couldn’t be OPEC’s resistance to produce more oil, or the unrest in the Middle East disrupting supply, or better yet, the more than $2 trillion the Fed has pumped into the economy since 2008. No, those are all red herrings, akin to Sidney’s father always out of town on business in Scream 1.

President Obama also called on Congress to end the $4 billion of subsidies given to oil and gas companies each year. I can agree with him there, but then again, I’m against most corporate welfare that comes to mind (unlike our government).

Here is one of many charts in existence to show the mirror image relationship between the US dollar and crude oil. The two are inversely correlated, and almost perfectly at that. After all, oil transactions are denominated in US dollars. You’ll notice the green line moving downward representing the dollar versus a basket of currencies. The spot price for a barrel of crude is represented in black.

Simply put, as long as the Fed is around to print money out of thin air, don’t expect fantastic oil prices. If you like paying an arm and a leg to fill up your tank, make sure to vote for the same type of politicians in 2012.

Click for larger image

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One thought on “Newsflash! Oil is Inversely Related to the Dollar

  1. Pingback: Oil Prices Mirror Fall of the Dollar | Laissez Faire Links

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