High Oil Prices Caused by Falling Dollar? Not so Fast!

In the past few months, economists and pundits have blamed raging oil prices on a falling value of the dollar relative to foreign currencies. From a period of December through March, the dollar fell against the euro and other major currencies as aftershocks of the housing and credit crisis rippled through the US economy. But today, oil touched $124 dollars a barrel in the face of a rising dollar.

According to Nate Hudgins at The Oil Drum, in the period of time when oil has risen from $106 per barrel to its current high price, the dollar has rallied from 1.6 to 1.535 dollars per euro. Looking at the price data in this way lends new clarity for the reasons behind the high price of oil. Such reasons have been well defined by Peak Oil theorists like Colin Campbell and Kenneth Deffeyes for more than a decade now. But despite Campbell and Deffeyes sounding the alarm far ahead of the crisis we are in today, it takes the removal of all other possibilities for energy optimists like CERA's Daniel Yergin to predict $150 oil.

The fact that Yergin is predicting a rise in oil prices should be cause for certain alarm among those who follow oil markets. Yergin has consistently predicted lower prices, year-on-year, despite a world-wide failure to discover substantial new oil reserves in the face of a vicious depletion rate. For people like Yergin to change their tune at this point heralds the beginning of a new era for world energy production. That era is the age of Peak Oil which, whether we admit it or not, we have entered already.