How much of the recent rise in oil price is caused by the decline of the dollar?
Question/Comment: How much of the recent rise in oil price is caused by the decline of the dollar?
Paul Solman: The easiest answer – but it’s a crude one – is the amount by which the dollar has declined in general: something like 30 percent against a trade-weighted basket of currencies since 2002. So if the dollar was still worth what it was back then, all else equal, oil should be selling for less than $100 a barrel today, instead of closer to $130 a barrel. At the pump, gas should be closer to $3 a gallon than $4.
Meanwhile, the price of oil per barrel has more than quadrupled since 2002 and the price of gasoline roughly tripled.