BEYOND ECONOMICS 101: High oil prices have nothing to do with supply and demand.‏‏‏

[Mongoose470]

IMO oil prices are not rising because of a lack of supply..the prices of oil, gold, wheat, and other commodities are rising because of the decline of the world’s reserve currency, the U.S. Dollar. Dollar value decline, entirely caused by inflation, precipitates speculative market action further raising oil and commodity prices. think it's like a chain reaction.

Thank you for your observation about the dollar. That's also econ 101. Dollar weakens, cost of imports rise, all things being equal. OPEC has complained about our dollar several times and economists are finally taking notice. I've seen figures as high as 60% on how dependent our oil consumption is on imports.

However econ 101 would intuitively claim that the trade deficit should go down with a weak dollar. Such has NOT been the case. The relationship between the weak dollar and high oil prices has actually worked against reducing the trade deficit.

 

[Zippyjuan]

If the supply of money was the major factor for the price of oil then we would expect the price of almost all other items to move up at aproximately the same rate as the price of oil. But the price of oil has been going up considerably faster than the price of other items. Supply of money is A factor, but not THE major one. Both money and supply/ demand are impacting it. There are also factors effecting the value of the dollar other than just our money supply. A major factor on that is our huge budget deficit and the vast sums of money we have to borrow to keep the government going. The value of the dollar is a larger effect than the US money supply and probably a large effect than supply/ demand. I would put the value of the dollar as the first factor and supply/ demand as second with the money supply and speculators as minor contributors.

 

[jjbond007]

Thank you for your observation about the dollar. That's also econ 101. Dollar weakens, cost of imports rise, all things being equal. OPEC has complained about our dollar several times and economists are finally taking notice. I've seen figures as high as 60% on how dependent our oil consumption is on imports.

However econ 101 would intuitively claim that the trade deficit should go down with a weak dollar. Such has NOT been the case. The relationship between the weak dollar and high oil prices has actually worked against reducing the trade deficit.

You made some pretty interesting points and I'd have to agree with you.

 

[ThePieSwindler]

It also has nothing to do with speculation. As has been argued before, but in a nice compact, easy to read form :

http://www.economist.com/opinion/displaystory.cfm?story_id=11670357