StrictConstruct

Under normal circumstances, an increase in oil supply would logically be followed with a decrease in oil prices, and this would be what most would expect by virtue of the nature of supply and demand. And in this case, not only did oil supplies increase, but by over 600% what was expected. Further, demand for oil, while still growing, is at a dramatically lower pace than average. These things also considered, one would certainly expect to see prices fall.

Nonetheless, oil prices reached a record high today of $110.20 - in a clear illustration of what happens when a currency is being devalued. Just as supply and demand works with oil, so too does it work with the dollar. As more and more money is printed and entered into the market, it increases the money supply and thus reducing its value. And so despite the fact that oil has gone down in value, the dollar has gone down even more, thus creating the effect of a price increase - indeed, a record price increase.

With the Federal Reserve’s decision to put $200 billion more dollars into the markets yesterday, there is no reason to expect that this trend of devaluation will not continue. And just think - if a huge increase in oil supply didn’t happen today, how bad would oil prices be? If on a good day oil prices still set a record, imagine how it will look when oil supply is average, or even worse?

(Photo credit to arbyreed.)