Last week, oil price set another record at $125.96 a barrel on Friday following the consistent weak dollar. The question is: Does a weak dollar equal equal high price of oil?
“The problem is that the market for dollar-denominated assets is orders of magnitude bigger than the oil market,” Mr. Diwan says, so this hedging can have a disproportionate effect on oil prices. “It’s like a lake and a pond, and the lake is overflowing into the pond.”
“The problem is that the market for dollar-denominated assets is orders of magnitude bigger than the oil market,” Mr. Diwan says, so this hedging can have a disproportionate effect on oil prices. “It’s like a lake and a pond, and the lake is overflowing into the pond.”
While it’s hard to pinpoint the impact, it’s clear that money has been pouring into commodities over the last five years. In the first quarter of 2008 alone, commodity assets under management rose $30 billion, to $225 billion, according to estimates by Barclays Capital.
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