The real price of oil - ITS THE ECONOMY STUPID!

[populistdriven]

The American Geological Institute (AGI) recently released a report looking at the price of crude oil in relation to the U.S. dollar and the price per ounce of gold. It highlights a fact that probably makes some folks at the Federal Reserve very nervous.

This graph makes it easier to understand:



The bottom purple line is the price of a barrel of crude oil per ounce of gold (if you wanted to use gold to pay for a barrel of oil). As you can see, that line is stable, and has been for the entirety of the graph, which is about 7 years.
The top two lines are the price of oil in relation to currency (blue is the Dollar and the red is the Euro). Those lines show that the cost of oil has been going up in relation to currency only. What this chart makes obvious is that the value of oil has not been increasing in real terms, currency has just been decreasing in value.

To put it another way, if the US Dollar were still based on gold (as it was until Nixon eliminated the Bretton Woods system in 1971), then the price of oil would be just as stable as that purple line in the chart is.

http://www.ridelust.com/the-real-price-of-oil-dollars-gold-and-the-price-of-tea-in-china/

[bemildred]

1. OBL said in 1998 that oil should cost $144 a barrel.

This year, he got what he wanted.

[dkf]

2. We are all screaming about the price of oil when we should be screaming about decline of the dollar.

That is the real culprit here.

[depakid]

3. So a finite resource will remain at a stable price as demand rises and supply plateaus

if only we were on the gold standard?

[populistdriven]

6. If the US dollar had remained strong in the global economy, oil might, in theory, be around $65/bbl

read the article before doing your google image search

[depakid]

7. I'm aware of the theory

Perhaps you missed my sig line...;)

[populistdriven]

8. and if you had read the report you would have seen this

And here’s the summary from the AGI report:

The steep increase in the price of crude oil in the United States remains a headline issue, along with the falling US dollar. The drop in the dollar has caused concern in oil-producing countries which use it as the economic basis for the commodity, and often their currency. The chart below shows the spot market price of crude oil per barrel (BBL) in US dollars and in euros from 2001 to today. The price of oil has grown faster relative to the dollar than to the euro. Yet, a PORTION of the rise in oil prices is due to the fall of the value of the dollar. The graph also shows the number of barrels of crude oil per cost of an ounce of gold, demonstrating the parallel growth in commodity pricing.

If the US dollar had remained strong in the global economy, oil might, in theory, be around $65 per barrel. However, oil is priced in dollars, and oil prices continue to rise. The impact of increased oil prices can not be ignored in the US economy, AND, in turn, can further weaken the dollar. Resource economics is a COMPLEX FEEDBACK LOOP where today’s resource boom is driven by many external factors. This complex system bears watching by all geoscientists.

[yourout]

4. As goofy as it sounds high oil prices now may save the planet for a while....

by forcing down consumption and helping push along R&D of green technology.

I still think algae based fuel has huge potential.

[populistdriven]

5. No, Here is the AGI data report

http://www.agiweb.org/workforce/Currents-007-OilByCurrency.pdf

And here’s the summary from the AGI report:

The steep increase in the price of crude oil in the United States remains a headline issue, along with the falling US dollar. The drop in the dollar has caused concern in oil-producing countries which use it as the economic basis for the commodity, and often their currency. The chart below shows the spot market price of crude oil per barrel (BBL) in US dollars and in euros from 2001 to today. The price of oil has grown faster relative to the dollar than to the euro. Yet, a portion of the rise in oil prices is due to the fall of the value of the dollar. The graph also shows the number of barrels of crude oil per cost of an ounce of gold, demonstrating the parallel growth in commodity pricing.
If the US dollar had remained strong in the global economy, oil might, in theory, be around $65 per barrel. However, oil is priced in dollars, and oil prices continue to rise. The impact of increased oil prices can not be ignored in the US economy, and, in turn, can further weaken the dollar. Resource economics is a complex feedback loop where today’s resource boom is driven by many external factors. This complex system bears watching by all geoscientists.