AFM reader, LOL, asked an interesting question on my post linking to an article about oil prices. His question:
“Is it really oil (up 3%), natural gas (up 8%), copper (up 4%), stocks (up 2%) and everything else going up — or is it really that the dollar is falling (down 1%)?”
It’s thought that the massive runup in the price of oil was linked to the U.S. Dollar falling against the Euro.
I did a little research and found a chart that plots the price of oil against the price of the Euro. As you can see there is a correlation between the two but is it enough to link the two? I’m not sure. I’m NOT an expert on this stuff but thought it would make for something interesting to look at. Here’s the chart (click to see a larger version):
The Price of Crude (BLUE right axis) vs.
The Euro (GREEN left axis)
From it’s low of around 1.25, the Euro has rebounded to around 1.44, an increase of 15%. From it’s low of around $44 to it’s recent price of $71 per barrel, oil has increased 61%. Granted, a lot more goes into the price of oil than just exchange rates. Supply and demand is the main factor. I also don’t think we can dismiss speculation from the equation. I just can’t believe that last year’s huge rally was due to supply and demand.