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Higher Oil, Lower Dollar Go Together

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News that President Obama has created a group to determine why energy prices keep rising seems like overkill. There’s really no mystery, as the price increases are directly linked to the declining greenback.

Crude oil is priced in U.S. dollars. As the dollar falls – mainly due to low domestic interest rates, high amounts of public borrowing, and lower GDP growth compared to developing nations – it takes incrementally more of these “cheaper” dollars to pay for the same barrel of oil. Recent global demand increases has only made the situation worse.

Attempts by the Treasury to “talk” the dollar higher have been met with considerable skepticism, and will likely be ineffective until a genuine plan to reduce U.S. debt levels comes to fruition. In the meantime, the vicious cycle of higher crude and a weaker dollar will likely continue.