September 23, 2011
The Post discussed the turmoil in financial markets yesterday. It told readers that
“Crude oil fell more than 7 percent, to about $80 a barrel, its lowest price in four weeks.”
It then went on to say:
“Market observers attributed part of the fall in raw-material prices to investors rushing into dollars. The dollar index moved to a seven-month high after the Federal Reserve announced its decision to buy up $400 billion in long-term debt. Commodities such as crude oil are priced in dollars, so as the currency rises, oil becomes more expensive for holders of other currencies.”
This makes no sense. It doesn’t matter at all to other countries what currency oil is priced in. As it just reported, oil prices measured in dollar terms fell. This was due to the fact that the value of the dollar rose against other currencies. This means that higher dollar was offset by lower oil prices, meaning that the price of oil would be little changed for most other countries.
The fact that oil is priced in dollars is irrelevant. The situation would be the same for both the United States and other countries if oil were priced in corn. (There is an issue of oil that is purchased under long-term contract. The cost of this oil, if it is denominated in dollars [it may not be, people write any contract they want] would rise to third countries when the dollar rises in value.)
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