Supply Chain

Where is Oil Headed? History Says Follow the Dollar

March 7, 2011

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.

About the Author

Andrew R. Thomas Blog | Associate Professor of Marketing and International Business

Andrew R. Thomas, Ph.D., is associate professor of marketing and international business at the University of Akron; and, a member of the core faculty at the International School of Management in Paris, France.

He is a bestselling business author/editor, whose 23 books include, most recently, American Shale Energy and the Global Economy: Business and Geopolitical Implications of the Fracking Revolution, The Customer Trap: How to Avoid the Biggest Mistake in Business, Global Supply Chain Security, The Final Journey of the Saturn V, and Soft Landing: Airline Industry Strategy, Service and Safety.

His book The Distribution Trap was awarded the Berry-American Marketing Association Prize for the Best Marketing Book of 2010. Another work, Direct Marketing in Action, was a finalist for the same award in 2008.

Andrew is founding editor-in-chief of the Journal of Transportation Security and a regularly featured analyst for media outlets around the world.

He has traveled to and conducted business in 120 countries on all seven continents.