Too Little Oil or Too Much Money ?  

Posted by Big Gav

This article offers the theory that the rising oil price is due to the decline of the US dollar.

Greenspan claims that changes in the balance of oil supply and demand are causing the price of oil to rise. The defining characteristic of oil prices in the past several years has been a steady rise from around $10 a barrel to over $40. Not to put too fine a point on it, that's a 400% increase. Greenspan claims that the relentless rise in prices over the past two years is largely the result of supply disruptions coincident with rising demand in China and India.

The reality is that all manner of oil supply interruptions—hurricanes, strikes, revolutions, militant attacks—have been going on for decades without causing the price of oil to steadily rise as it has over the past several years. It used to be—ever since OPEC's supply-induced price shock in the 1970s—that events that disrupted the oil supply temporarily would cause oil prices to spike up, then decline nearly as rapidly. This happened in the first Gulf War, for example; prices jumped at the beginning of the conflict, then dropped back down a few months later. But this time, the price of oil has been rising steadily. In fact, nearly exactly as long as the dollar has been declining.

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