Skip to comments.Gasoline Prices Are Not Rising, the Dollar Is Falling
Posted on 02/23/2012 6:19:12 AM PST by SeekAndFind
Panic is in the air as gasoline prices move above $4.00 per gallon. Politicians and pundits are rounding up the usual suspects, looking for someone or something to blame for this latest outrage to middle class family budgets. In a rare display of bipartisanship, President Obama and Speaker of the House John Boehner are both wringing their hands over the prospect of seeing their newly extended Social Security tax cut gobbled up by rising gasoline costs.
Unfortunately, the talking heads that are trying to explain the reasons for high oil prices are missing one tiny detail. Oil prices arent high right now. In fact, they are unusually low. Gasoline prices would have to rise by another $0.65 to $0.75 per gallon from where they are now just to be normal. And, because gasoline prices are low right now, it is very likely that they are going to go up moreperhaps a lot more.
What the politicians, analysts, and pundits are missing is that prices are ratios. Gasoline prices reflect crude oil prices, so lets use West Texas Intermediate (WTI) crude oil to illustrate this crucial point.
As this is written, West Texas Intermediate crude oil (WTI) is trading at $105.88/bbl. All this means is that the market value of a barrel of WTI is 105.88 times the market value of the dollar. It is also true that WTI is trading at 79.95/bbl, ¥8,439.69/barrel, and £67.13/bbl. In all of these cases, the market value of WTI is the same. What is different in each case is the value of the monetary unit (euros, yen, and British pounds, respectively) being used to calculate the ratio that expresses the price.
(Excerpt) Read more at forbes.com ...
—Gasoline Prices Are Not Rising, the Dollar Is Falling—
Yup. It’s why the market is “rising” too.
A weak dollar is not a wholly unmixed curse. It helps exports.
State wrestling tournaments have more to do with the prices in our state than any external factors. :-) Prices jumped at many places by 30 cents, because this weekend is the tournament.
Author links the price of gasoline to the price of gold and of course, the weak US Dollar...
In terms of judging whether the price of WTI is high or low, here is the price that truly matters: 0.0602 ounces of gold per barrel (which can be written as Au0.0602/bbl). What this number means is that, right now, a barrel of WTI has the same market value as 0.0602 ounces of gold.
During the 493 months since January 1, 1971, the price of WTI has averaged Au0.0732/bbl. It has been higher than that during 225 of those months and lower than that during 268 of those months. Plotted as a graph, the line representing the price of a barrel of oil in terms of gold has crossed the horizontal line representing the long-term average price (Au0.0732/bbl) 29 times.
At Au0.0602/bbl, todays WTI price is only 82% of its average over the past 41+ years. Assuming that gold prices remained at todays $1,759.30/oz, WTI prices would have to rise by about 22%, to $128.86/bbl, in order to reach their long-term average in terms of gold. As mentioned earlier, such an increase would drive up retail gasoline prices by somewhere between $0.65 and $0.75 per gallon.
At this point, we can be certain that, unless gold prices come down, gasoline prices are going to go upby a lot. And, because the dollar is currently a floating, undefined, fiat currency, there is no inherent limit to how far the price of gold in dollars can rise, and therefore no ultimate ceiling on gasoline prices.
If oil is traded in dollars, why would the value of the dollar make a difference? Seems that it would just make oil ‘cheaper’ for those with currencies of higher value than the dollar.
When Roosevelt was president gold was $35 per ounce. It was and still is the measure of what’s financially real. Now at over $1700 per ounce what has changed, the gold or the dollar in which it is “valued”?
If oil is traded in dollars, why would the value of the dollar make a difference? Seems that it would just make oil cheaper for those with currencies of higher value than the dollar.Because a cheaper dollar buys less oil. Energy is the perhaps the most reliable indicator of the value of any currency.
The sky is not falling.
The ground is rising!
I judge the price of gas, by what percentage of my paycheck goes into my gas tank every week, and that percentage is rising. My number of paycheck dollars are not rising as the value drops.
Gas prices were almost half of what they are now when Barry came into office. Crude was way down because we had a larger supply of oil also. Drill here and drill now and get someone in office that has an energy plan for the American people and not the terrorists.
The dollar has been relatively stable for about two years now against the major currencies (excepting the Franc - but thats been pegged since last summer) ...
check this: Historic Exchange Rates
Enter the EUR, CHF, GBP and go back two years ...
You can add Yen too, but that flattens the others ...
The same thing happened in the late '70s to early 1980s. The price of gold shot up more than sixfold. Was the dollar suddenly worth one sixth of its value? No, gold crested near $700 an ounce, had some wild swings and settled down below $400 an ounce for most of the '90s, then dipped below $300 an ounce in '98 and stayed there till the next speculative spike.
So, was the dollar worth twice as much in '98 as in '80? No. So, was the dollar worth twice as much in
Berrwacky and his printing press, everything is rising a 5 dollar coke is on the way.
“The sky is not falling.
The ground is rising!”
It’ very fortunate that the ground is rising. Were it not for that continental land mass rise exactly offsetting the rise of the oceans, all of our coastal cities would be under water by now.
Just ask Al Gore if you don’t believe that.
Got any wrestlers in the tournaments?
The dollar has been stable against other currencies, like the Euro, etc. Every damn currency is weak because the governments have spent our money like there is not end to the printers. Compare the currency to a resource (gold, oil,) and they are all weak, the more $ printed, the less it’s worth. Just saying it’s strong compared to Greek, Italian, French, and Spanish currency is pretty meaningless. We don’t need to use $ to buy Euros to live on. We use it for food, gas, etc. all which take more $
For a while -- maybe.
But a falling currency is the result of monetary inflation which also eventually causes domestic prices and wages to rise which make imports more attractive to consumers thus increasing the trade deficit.
No, my children are too old, and my grandson is too young. He’s planning on a “career” in soccer, at this time. :-) I just try to keep up on what’s going on so I know where NOT to take a drive!