As most people realize oil is traded internationally with the American Dollar or "greenback" so oil prices are inherently tied to the dollar. John Tamny has a column today that looks at the price of oil versus the value of gold and theorizes about how to lower gas prices. While somewhat simple I found somethings he said quite interesting:
So the answer is really quite simple. If we want cheaper gasoline, we need the U.S. Treasury to target a stronger dollar, and for it to even threaten intervention if markets unexpectedly fail to comply. If a $500 gold price is targeted as so many gold-watchers would prefer, the stronger dollar will sooner rather than later reveal itself in greatly reduced oil prices; roughly $33/barrel if historical gold/oil ratios once again prevail.For now though, it's a waste of time to bemoan what many deem "expensive oil." Time is wasted because there's no such thing as expensive oil, and there never has been. Instead, we have a problem of Americans supposing that the dollar is fixed in value, when in fact the dollar floats.
While I do see the good in advocating for a stronger dollar, and soon, I think Tamny is a little optimistic about the price of oil falling so far so fast. With unemployment staying relatively high we need a weaker dollar to stimulate foreign investment and not hamper job growth. In the near future a stronger dollar would be advantageous to us, and our autos, but don't expect 1980's gas prices. Demand is rising and the market is meeting that demand, so no matter how the dollar is valued one has to account for China and India's consumption.
