Weak dollar adds $20 to the price of oil

Posted Nov 15th 2009 4:31PM by Connie Madon
Filed under: Forecasts, Management, Competitive Strategy, China, Oil

The price of oil has risen from about $30 per barrel at the height of the economic recession to the present $77 per barrel. Much of the increase is due to the weakness in the U.S. dollar. Rex Tillerson, CEO of Exxon Mobil (XOM) told CNBC: "If you put the price of oil, which is priced in dollars around the world, and if you look at what some effects are with the weak dollar -- in our view that is contributing $20 to $25 dollars per barrel to the price."

Globally, Tillerson said, oil is well supplied with historic high inventory levels, especially in the U.S. This is causing the market to be a "bit soft," according to Tillerson.

Interestingly, Tillerson is forecasting oil demand from the Asia Pacific region growing at 1.8% rate over the next two decades.

He stated that he doesn't have enough money to compete with the Chinese when it comes to cutting deals with other countries for the sale of oil. Instead, he will depend on selling "value" as a key strategy for selling the company's oil.

If Tillerson is right and demand from the Asia Pacific region will grow by only 1.8% per year over the next two decades, much of the hype of an oil shortage is overblown. Add to this any reduction in demand from "green energy" and the number could even out to zero.

So the question is: Can we look forward to stable oil prices for the next decade, or will the weak dollar keep oil prices rising?

Tags: dollar, inthenews, oil, oil inventories, OilInventories