Publications: Notes at the Margin

Oil and the Dollar (January 29, 2018)


In a hypothetical exercise, we find strong growth in US output from 2019 to 2020 traces back to the oil price rise spurred by the dollar's decline. This hypothetical example warns that a weak dollar sows the seeds for higher oil prices. 


This finding should not be a surprise. Seven years ago, The International Economy published a piece by this author titled "Blundering to $300 Per Barrel." It warned readers that "Europe and the United States would likely see four major price cycles between 2012 and 2020." It assigned blame for the cycles to a failure to coordinate "agricultural, energy, and environmental policies in major countries," adding that "misguided tax policies and incentives offered to business" would make matters worse.


The world has yet to see $300-per-barrel oil. However, it has arguably seen a few small and one large cycle since 2010. A second large cycle could well be underway.


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