Publication

This report analyzes the relationship between the dollar and the price of oil and how the two might interact. While the data do not support a strong cause and effect relationship between the value of the dollar and the price of oil, there likely are various channels through which changes in the price of oil and in the value of the dollar may be indirectly correlated. The data also indicate that an increase in the demand for crude oil that exceeded the increase in the supply of oil and a laggardly pace in oil production capacity likely are among the main factors behind the sharp run up in the price of oil that occurred over the first seven months of 2008. The rise in oil prices also affected the US trade deficit.