- A barrel of oil price stands in USD all over the world. When greenback stands strong, one needs fewer USD to purchase a barrel of oil. When USD goes down, the price of oil gets higher in dollar terms.
- USA has been a net importer of oil for decades. Climbing oil prices cause the US trade balance deficit to go up as more dollars are needed to be sent abroad.
Changing corrrelation of USD and oil
USD and oil. It is hard to state that these two have had a very calm and stable relationship. One can say that this union stands on two rules:
And although both of the statements were true in the past, right now… not so much. The second point can be easily said to be obsolete as US have increased domestic oil production thus cutting their needs from importing oil.
Ad what does that mean? That means that the national currency of the USA has all the chances to become a petrocurrency – a currency that heavily relies on prices for oil like Russian ruble or Saudi Arabia riyal.
That also means that over the years the relations between the USD and oil have changed significantly. As US produced more and more oil a new dynamic emerged in the markets as well as between these two assets.
If before the charts of oil price and dollar basket looked like polar opposites, right now they start to look alike… a lot. That means that the more expensive oil gets, the more power the dollar gets. Simultaneous movements.
And even though it might not be the dynamic that we are used to see between the USA and oil it doesn’t change the fact that pretty soon we are going to see USD turn into a petrocurrency.
Comments powered by CComment