Dollar's decline pumps up gas prices

The Kansas City Star - Knight Ridder/Tribune Business News via COMTEX ^ | Thanksgiving-Nov 25th, 2004 | The Kansas City Star - Knight Ridder/Tribune Business News via COMTEX

[M. Espinola]

It's easy to wonder why you should care when economists drone on about the declining value of the dollar.

Here's one reason: Gasoline prices are up 44 cents a gallon since this time last year, and nearly half of that increase comes from the weaker dollar.

A declining dollar makes foreign goods more expensive, and crude oil is a prime example. Economists estimate that $8 of the current cost of a barrel of oil -- or 20 cents of each gallon of gas at the pump -- can be traced to the drop in the dollar's value in world markets.

"It is one of the prices we pay for having a weaker dollar," said Stephen P.A. Brown, director of energy economics at the Federal Reserve Bank of Dallas.

[M. Espinola]

The dollar posted a record low against the euro Tuesday and has lost value against other major currencies as well, amid concerns about the U.S. trade and budget deficits and fears that foreign investors could cool to U.S. investments such as Treasury bonds.

U.S. Dollar Chart

For U.S. consumers, the traditional response to a declining dollar is to think twice about buying imported goods, or to postpone foreign travel because the dollar doesn't go as far. But about the only choice to escape the declining dollar's effect on oil is to use less fuel, since oil prices are set for the international market. The United States imports about two-thirds of the oil it consumes.

Other factors also affect oil prices. Though the dollar's decline continues, crude oil prices have also declined slightly from their earlier highs, in part because of concerns about supplies easing. A barrel of West Texas Intermediate, a benchmark for light sweet crude oil, was $56.17 in October and closed Tuesday at $48.74. That's still $20 above the price of a year ago as the worldwide use of oil continues to climb.

"The whole story is world demand for oil," said James Williams, an analyst with WTRG Economics in London, Ark.

But in the United States, part of the story is the dollar. Brown, of the Federal Reserve Bank, said his research has shown that about 75 percent of the effect of a weaker dollar flows through to the price of oil.

"As long as the dollar remains weak ... its weakness will be reflected in the price of oil," he said.

[Moonman62]

Economists estimate that $8 of the current cost of a barrel of oil -- or 20 cents of each gallon of gas at the pump -- can be traced to the drop in the dollar's value in world markets.

It's probably a lot more than that. The OPEC guys have ways to constrain supply when the dolar weakens, which is something they really don't like.

[endthematrix]

"Other factors also affect oil prices."

Uh, TAXES!

[coconutt2000]

Speculation. Once the economy is further along in its recovery, the trend will reverse.

The Euro is still a decade away from challenging the dollar, and the poor state of the economies in Europe is not going to help them when the dollar is weak. In all likelihood... Europe is screwed if they don't learn some supply side economics fast.

[M. Espinola]

You are right, in fact between state & federal taxes we get stuck with, contingent on the given state, 26 to 42 cents on each gallon of gas.

[DB]

The trade deficit is a major factor to the decline of the dollar.

This is how imbalances are corrected in a market economy.

Imports become more expensive and exports become less expensive.

Government intervention in the markets to try to defy the natural balance of the markets always makes things worse in the long run. Let the markets do their thing without government intervention.

[Glenn]

I'm offended that PA is not dark green. We just learned that we will be subject to a 3.8 cent increase in taxes due to a clause in a 1980 agreement between the state and oil.

Competitive suffering demands that we go dark green.

[endthematrix]

So all that yapping that evil big oil corporations get all the profit from poor old ladies pumping gas in the rain, the government asks very quietly to confiscate you cash, with hardly an eyebrow raised.

[endthematrix]

Here I'm mad I'm in a BLUE state!

[Welsh Rabbit]

I live in Georgia, which apparently has the cheapest gas in the US, and it's still around $1. 80 for regular unleaded.

[PeteB570]

ANWR

[In The Crease]

"I live in Georgia, which apparently has the cheapest gas in the US, and it's still around $1. 80 for regular unleaded."


Come to Canada........it's $4.00

[raybbr]

I've always heard that oil prices are based on the U.S. dollar? How does this article make sense if that's true?

The Organisation of Petroleum Exporting Countries would not adopt the euro to replace the US dollar as the currency for oil sales, the body's president, Purnomo Yusgiantoro, said yesterday.

"Our members have different markets so I think the dollar is still the best," Mr Purnomo told reporters in Jakarta.

The euro held near a record high against the dollar in Asian trading after Russia's central bank said it might raise holdings of the European currency.

A weaker dollar makes dollar-denominated oil cheaper for buyers using other currencies and reduces the buying power of countries that export oil.

From here.

It doesn't say that oil prices for users of the dollar are up.

[Welsh Rabbit]

Ouch! Why is that? I know Canada has a leftist government, but it is also one of the biggest oil producing nations. Is it taxes or lack of refineries or something else?

[rodguy911]

Whatever we do lets protect the frozen rats in Anwar, no drilling there please.Unbelievable.

[In The Crease]

"Why is that?"


Taxes, taxes, taxes.

[M. Espinola]

Maybe Penn is just a cent shy of Conn & Nev.

[Snowyman]

Come to Canada........it's $4.00

There are 3.79 litres in a US gallon . I'm paying about $2.45-2.50 USD/Gal. in Ontario. Just were do you live? Baffin Island.

[M. Espinola]

The leftist hypocrites, stuck in the radical 60's, seek total protection of frozen rodents & man eating mosquitoes, even if such a foolish policy supersedes national security while in a state of war. Is it that the Volvo driving, Kerry promoting pinkos just do not fathom the clear dangers poised by militant Islamist terrorist thugs, not only to America, but the entire globe, or maybe, since the Left is consumed in 'hating Bush coupled with really loathing decent American values, just as fanatical terrorists do? The leftwing would say; , 'then ahh let them alone man, they are just trying to be good little jihad fellows, and anyway it's all Bush's fault ..bla, bla & more bla..s

[Old Professer]

Reverse analysis; the price of oil on the Euro market is cheaper by the difference but ours is still based on the benchmark dollar price.