I have no idea why no one has commented on this before, but if you crunch some numbers, you will find that the “real” price of oil has increased inversely to the value of the dollar against gold. (I used gold because it’s a recognized commodity that has stood us in good stead for comparison purposes over the years.) Let’s put this another way. If we convert our 2006 dollars to 2006 gold, how much oil would an ounce of gold have bought? Let’s compare that to how much oil would be bought with an ounce of gold today.
Just about a year ago gold was $650 an ounce. Today it is $850 an ounce. That means that gold has increased by 200/650 or 31 percent during the past year.
Just about a year ago oil was around $60 a barrel. Today it takes about 117 dollars to buy a barrel of oil.
A year ago one ounce of gold was worth $650. And would buy 10.83 barrels of oil. Today that ounce of gold would get you 850 dollars or 850/117 barrels of oil, equal to 7.26 barrels of oil. An ounce of gold buys 3.57 barrels less than it did a year ago. That’s an increase in cost versus gold of 3.57/10.83 or 33 percent.
And during that same period the dollar has dropped by 31 percent.
As the dollar has gone to hell in a handbasket, the real price of buying oil has gone up in an amount pretty doggoned equal to the loss in purchase power of the dollar.