Business Report: What drives oil prices

HONOLULU (HawaiiNewsNow) - Crude oil this morning, as expressed by West Texas Intermediate, is a little over $61 a barrel. That's more than it was at any point over the last two and a half years, when prices were sometimes below $50. On the other hand, oil cost twice as much for most of 2013 and 2014.Most people think oil prices are determined by supply and demand, but there is another factor. Oil is transacted in U.S. dollars on all world commodity exchanges. Even if the seller is Venezuela and the buyer is China, the medium of exchange is the dollar. When the dollar is strong, the seller can afford to charge less, knowing that it will convert to a larger number of rials or pesos because the dollar is worth so much. And when the dollar is weak, it drives oil higher as producers seek to make the same money as before.

Copyright 2018. Hawaii News Now. All Rights Reserved.