Friday, July 11, 2008

I’m Speculating The Weak Dollar is The Problem: High Oil Prices and Airlines

The author of Less Than a Shoe String, a great budget travel blog, forwarded me an open letter from American airline CEOs. The letter described here basically points to speculation in the oil futures market as the cause of the sharp increase in oil prices over the last year or so. It urges everyone to contact their congressperson to stop oil futures trading to save the airline industry

I’m speculating here, but at the same time oil prices have been increasing the value of dollar compared to other currencies has been decreasing. As currencies depreciate (lose value) imports become more expensive.
If $1 is worth half of what it used to be, we can buy half as much oil.

Econobrowser, graphs oil prices in both US $ and Euros. I have included his graph below. You can see oil prices in Euros have increased but not as much as in $s.

So although speculation may be part of it (my guess is a small part), the really big force seems to be the weak US dollar.

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1 comment:

Midwest Post said...

Interesting thoughts. What you are saying makes sense but what can you fault the biggest reason of inflation on or the biggest reason for the decreased value of the dollar? Do you have another graph that shows the value of the dollar versus the price of oil vs the supply and demand for oil?

Though I am not an economist, it would seem that the increase in oil prices would some how influence the value of the dollar - at least domestically - due to the cost of goods sold dramatic rise in price (Rising gas prices leave us with less money and will drive us to borrow money to keep up our standard of living.) If the value of dollar is influenced by oil prices, can the oil prices be influenced by the value of the dollar?

It would be interesting to see a chart of the value of the dollar, vs the value of oil vs the value of the Euro.