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Oil Price vs. Declining Dollar
Old 05-29-2008, 09:58 AM   #1
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Oil Price vs. Declining Dollar

I see this referenced so many times in the news as the big/little/not-at-all cause for oil's runup, but no real data provided.

So I did a very simple calculation.

Oil has doubled since this time last year. That's a 100% increase.

The Dollar has declined from ~$1.22 per Euro to ~$1.57 per Euro, about a 28% drop in value using $1.22 as the base.

So only a little over a quarter of the increase in the price of oil is due to the decline of the Dollar over the one year time frame.

Seems simple, am I missing something?
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Old 05-29-2008, 10:06 AM   #2
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Quote:
Originally Posted by Telly View Post
I see this referenced so many times in the news as the big/little/not-at-all cause for oil's runup, but no real data provided.

So I did a very simple calculation.

Oil has doubled since this time last year. That's a 100% increase.

The Dollar has declined from ~$1.22 per Euro to ~$1.57 per Euro, about a 28% drop in value using $1.22 as the base.

So only a little over a quarter of the increase in the price of oil is due to the decline of the Dollar over the one year time frame.

Seems simple, am I missing something?
You make a good point. I'd like to add, parenthetically, that you are assuming that the Euro is a constant standard. Maybe it would be preferable to assess the decline of the dollar relative to commodities such as gold or silver?
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Old 05-29-2008, 10:23 AM   #3
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Recently I looked at the dollar effect on the price of gasoline and approached it from a different methodology and a longer time frame. I've already tossed my notes, but my back of the envelope numbers indicated that the weak dollar added a little over 30% in nine years. My method was to look at retail US gas prices vs. those of countries like France, Germany, Belgium, and the UK.
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Old 05-29-2008, 04:04 PM   #4
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just checked using daily data over the past 3 years: every 1% decline in the value of the $ (major currencies index) apparently* yields about a 3% increase in the price of oil (west texas crude). (*since there are other things going on that effect the price of oil, this is very important word!) using shorter periods of time, the effect is considerably greater (about 4.4% over the past one year).
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