Crude Oil Prices Rise Due to Weakening Dollar

Due to an improving worldwide economic outlook, the price for oil has been rising even though the world is awash in crude oil. The Department of Energy reported that U.S. crude oil stockpiles soared by 1.7 million barrels in the week ending July 31, which was three times more than the average analyst estimate. Although the inventories of distillates (diesel, heating oil and jet fuel) and gasoline declined, seasonal demand is expected to moderate when the summer driving season ends after Labor Day, so the inventories of distillates and gasoline are expected to rise.

So why is the price of crude oil still rising? Simply, crude oil is priced in U.S. dollars and the greenback has been steadily declining against most major currencies since the first week of March. Due to exchange rates, the price of crude is naturally inflated under such conditions.

The U.S. dollar recently hit a 10-month low, and that drove up oil even though demand remained weak.

Looking forward, I expect this trend to continue to drive up energy prices–and once demand reignites, you can expect expensive crude oil to return in a hurry. Crude won’t be the only commodity that skyrockets in price, either. Since 88% of the world’s commodities are priced in dollars, other goods like gold and corn will also see surging prices. Just look at the two-month high set by gold recently to see the impact of the weak dollar on commodity prices.

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