The paper "Relationship between Oil Pricing and the US Dollar " is a good example of a business assignment. In recent years, the price of oil has risen steadily much to the chagrin of consumers worldwide. Coincidentally, the American currency (dollar) has seen a steady depreciation trend during the same period. For example, between 2007 and 2008, the price of oil rose from $65 to $120 a barrel; during the same period, the dollar depreciated by 12% and 15% to the euro and the yen respectively (Feldstein, 2008). While the rise of oil prices and the depreciation of the dollar could be seen as a coincidence, most analysts believe it is not.
The relationship between the dollar and oil is however clear-cut. For example, while Feldstein (2008) argues that the oil prices would remain the same regardless of the currency used to trade the resource, other analysts such as Ramady (2010) argue that the impact that oil has on the dollar is undeniable. The price of oil and the dollar Some observers argue that there is a “ direct cause and effect relationship” between the dollar’ s international exchange value and oil prices (Jackson, 2010, p.
2). Such an argument is founded on the fact that oil is priced in dollars and hence any depreciation in the dollar’ s value erodes oil producers’ purchasing powers. This argument is supported by the International Monetary Fund (IMF, 2008), which notes that a change in the dollar’ s value has an effect on commodity prices. The oil-dollar link explained above is not always accepted in all quarters. Grise (2010) for example argues that any changes in the values of the dollar affect the demand of the oil by either causing consuming countries to purchase more (i. e.
when the dollar depreciates) or less (i. e. when the dollar appreciates). Faced with an increase in demand, the oil-producing and exporting companies often adjust the oil prices upwards and vice versa (Grise, 2010). Actions by the Organisation of Petroleum Exporting Countries (OPEC) are also cited as having an effect on the oil-dollar link (see figure 1).
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