Monday, July 7, 2008

Oil and the Dollar

Dollar_euro_2 Oil is hovering just above $140 a barrel. Across the Atlantic, that translates to about €90. But just five and a half years ago, in late 2002, the price of oil was exactly the same in both dollars and euros. At that time the dollar and euro had the same value, and the price of oil was in the mid-twenties whether you were buying it with dollars or euros.

What this means is that while the US has endured a six-fold increase in the price of oil since late 2002, Europe has experienced slightly less than a four-fold increase. Of course, a four-fold increase would still not be great for the economy, but the prospect of paying $90 a barrel for oil seems pretty enviable at the moment.

The falling value of the dollar — about a 35 percent drop versus the euro since November 2002 — is essentially responsible for $50 out of the $140 we currently pay for a barrel of oil. At the pump, that $50 difference is about a dollar a gallon.

No comments:

Post a Comment