As the value of the dollar falls, the price of imported oil rises, which impacts costs from the gas pump to the grocery store. A reporter from the Wall Street Journal examines the current state of oil prices.
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And next, a second economics story, the price of oil and its connection to the dollar. Ray Suarez has that story.
The price of oil shot to a record level briefly yesterday, breaking the high set in 1980. Although the price has dipped since, the cost of oil has headed in just one direction since last March.
Back then, a barrel of crude traded at nearly $60. It has climbed steadily since. And as the dollar’s value dropped last month, the cost of oil jumped, reaching a record of $103.95 a barrel yesterday.
To understand what’s happening, we turn to Neil King of the Wall Street Journal.
And, Neil, what’s been driving oil higher for the last year, but especially in these last of couple of months?
NEIL KING, Wall Street Journal:
It’s a big question, and there’s a lot of mystery around it. I can tick off a few things; none of them will get to the total bottom of it.
But one is the dollar itself. The dollar goes down; oil prices go up. Oil is denominated in dollars.
There’s the weakness of the U.S. economy and the desire for a lot of investors to find refuge in other places, so they’ve been moving into the oil.
They’ve also been moving in huge ways into other commodities. Commodities of all kinds are setting record highs, obviously gold, silver, platinum, even wheat, corn, even coal, which is rather extraordinary.
And, lastly, I would point to the concerns out there that are really growing about whether we’re going to have proper supplies five, six years down the road. Will oil supplies continue to be able to meet demand? Or will there be a moment when demand might possibly exceed supply?
And this particular concern, which is a sort of peak-oil concern that some people are raising, is filtering into OPEC. The oil minister of Saudi Arabia yesterday was saying that this particular pessimism, which he calls “unfounded,” is one of the reasons that’s really driving oil up, as investors think, “Wow, this is a commodity that may become increasingly scarce down the road.”