Investors around the world are selling the U.S. dollar because of the massive Wall Street rescue plans, which thus far total a whopping $1.8 trillion. Oil is traded on a world market, with potential buyers and sellers having access to many currencies. A falling dollar translates into more expensive oil and higher prices at the pump.
There are other effects too. The government’s handling of the credit crunch seems to have scared investors headlong into commodities such as gold, silver, and even oil. So oil prices are rising because of a real demand by investors, as well as the declining exchange value of the dollar against other currencies. This is a one-two punch from the feds to consumers.
After weeks and weeks on the decline, oil prices shot up more than $15 per barrel today after the markets pondered the weekend news of the government’s bailout plans. At the same time, the euro rose more than 2.5 percent against the dollar, and the S&P 500 fell more than 3 percent. It seems clear that investors are running from sophisticated assets and are returning to the basics: commodities. In times of uncertainty, investors can always rely on an ounce of gold, or a barrel of oil.
According to one respected analyst:
“There is no logical reason as to what we are seeing now,” Stephen Schord, editor of The Schork Report told CNBC. “My biggest fear now is that we’re right back to where we were last September.”
“The Fed is signaling that they’re going to make money cheap again, cheap money is going to start piling into commodities—this is my biggest fear and it looks like this fear is coming into reality right now. We could be back on the road to what could be $150 crude oil, regardless of the supply-demand fundamentals.”
In light of the increasing cost of imported oil, and the growing burden on the U.S. Treasury, the case for opening up federal lands to oil and natural gas drilling becomes all the more compelling. Additional supplies of domestic energy through new leasing and development would lift the U.S. dollar and yield billions in additional state and federal revenues.