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Monday, July 13, 2009

Oil And The Dollar

One of my pet peeves is the rise and fall (and rise again)of oil prices, and the reactions from the main stream media, along with the morons in Congress. I have tried to point out that oil, being priced only in dollars, is a near mirror image of the dollar index. Naturally, since the oil market is much smaller than the FX market, the moves are going to be exagerated (just as small cap stocks trade with much more volatility than large caps), and also, the supply-demand dynamic plays a (so far) small part. Speculation also plays a part (in both markets, oil, being the smaller market, much more sensitive to it). This graph, from stockcharts.com, cannot show it any more plainly. You want low oil prices? Strengthen the dollar. It's that simple.

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