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Oil Production and Consumption Versus Price.

In Money Supply on March 14, 2011 by CQCA

 

In his Semiannual Monetary Policy Report to the Congress, Ben Bernanke stated: “[T]he increases in commodity prices in recent months have largely reflected rising global demand for raw materials, particularly in some fast-growing emerging market economies, coupled with constraints on global supply in some cases.”

According to data from the Energy Information Agency, shown in the chart above, both global demand for and production of petroleum have remained steady over the last five years. The world in 2009 was consuming .06% more petroleum than it was in 2005, and producing .25% less. This does not account for the 20% increase between the price at the beginning and end of the period.

Chairman Bernanke also stated: “Commodity prices have risen significantly in terms of all major currencies, suggesting that changes in the foreign exchange value of the dollar are unlikely to have been an important driver of the increases seen in recent months.”

However, OPEC prices its oil on the international market it U.S. Dollars.  Adding the indexed growth of the Dollar money supply shows that there is a correlation between the expansion of the money supply and the increase in prices.

This graph clearly shows that the only factor driving up the price of oil is the devaluation of the U.S. Dollar.  Supply and demand have remained constant.

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