3 ms·

How exactly does a strong USD decrease the price of oil?

• ci5er 11y ago
  Oil contracts and futures are priced in USD. This is what the phrase "Petro-dollar" refers to. And this is why everyone needs a big slug of dollars in their respective reserves - to buy oil. This scheme as been pretty good for the US, but other players are not quite so enamored with it. When the dollar is strong, it takes fewer of them to buy a barrel of oil. ITT there is a lot of talk about the production side of the equation, but the effect of the strong dollar and weaker Chinese demand have played a role too. China is talking with Russia, Saudi Arabia and Iran about RMB denominated contracts, so that'll be fun. Currency risk will have to factored into contract prices.
  • falsestprophet 11y ago
    "And this is why everyone needs a big slug of dollars in their respective reserves - to buy oil." This petrodollar conspiracy is baffling. Countries don't hold dollars solely to buy oil. The oil and gas industry is only about 4.6% to 6.5% of the global economy. Countries hold reserve currencies to manage the exchange rate of their currency. Petrodollar conspiracists would be well served by learning about foreign exchange reserves: https://en.wikipedia.org/wiki/Foreign-exchange_reserves https://en.wikipedia.org/wiki/Foreign-exchange_reserves And in any case, only 65% of foreign currency reserves are in the USD.
    • ci5er 11y ago
      OK. So let's just truncate all of that and directly answer the question by saying that when the dollar is strong it takes fewer of them to buy any particular amount of a commodity that is priced in dollars.
      • hueving 11y ago
        The dollar didn't more than double in value like it would be required to halve the price of oil.
  • fredgrott 11y ago
    but that is only due to one important thing... The US defense of Saudi Arabia has a requirement that Saudi sell oil in US dollars..