Sunday, February 26, 2012
'Stupid' and Oil Prices
This article examines the reason why the oil price in the US has rising dramatically recently. President Obama has been blaming the rise in oil price due to the increasing demands of Brazil and China, the turmoil in the Middle East, especially new fears of a supply shock from a conflict with Iran. However, the more likely suspect is what Mr. Obama does not like to mention, the monetary policy of U.S. Oil trade is in dollars, and its price therefore rises when the value of the dollar falls, all else being equal. The Federal Reserve throughout Obama's term has pursued the easiest monetary policy in modern times.
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5 comments:
I would think that the majority of American trade would be in dollars, including oil, but also every other marketable commodity. Oil gets a lot of attention in the popular press due to its prevalence in every day life, but also seems to be among the more volatile trade-able commodities. This excess volatility suggests that the main 'suspect' for rising oil prices would be shocks specific to oil, rather than the falling value of the American dollar, which is also used to purchase less volatile commodities.
This is an interesting analysis of the complex energy market. Government involvement may or may not have an effect on the price outcomes of energy the market, but it in the coming months it will be a heated debate for the 2012 Elections. I would say for the analysis made it the story made very strong points but when looking at the oil market at a whole its very hard to see how much effect US policy has on the worldwide price of oil.
I would be very interested in comparing the change in the value of the dollar with the change in the price of oil to see how strong of a correlation that there is between the two.
These are always very painful articles to read. I know we all stare at those signs hoping that the gas prices will slowly drop but even more so now, that is not the case. Hopefully government involvement would prove to be beneficial and help out all of our wallets because right now they are certainly taking a beating.
US is the third largest producer of oil in the world. There is a large stable supply of oil in the US, which could interfere with OPEC's ability to significantly affect the price of oil. In fact, supplies from war zones tend to have a greater effect on the price of oil due to the unstable nature of oil supplies from there.
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