Where is Oil Headed? History Says Follow the Dollar

Lost in much of the concern about rising oil prices is the commodity's relationship to the weak U.S. Dollar.

Certainly political events in the Middle East and the potential of a serious supply disruption are factors influencing the short-term price of oil.

Still, what we often forget in moments like these is that the value of the Greenback is historically the single greatest determinant.

The Dollar and oil have been inexorably linked since the 1920's, when the "Seven Sisters" established the global oil business on the Arabian Peninsula.

It is no coincidence that oil today is priced in Dollars and, despite the Metric System's widespread use around the world, still measured in 42 gallon barrels.

This is the way the "Seven Sisters"- almost all of them U.S. oil companies- wanted it.

The most recent round of quantitative easing by the Fed; and, concerns over growing governmental deficits in the U.S., have folks around the world spooked about the Dollar's vitality.

As evidence, the Dollar today is very weak relative to every other major currency.

If you want to know where oil is headed, be sure to keep an eye on events in the Middle East; but, more importantly, follow the Dollar.