Demand is more important than the dollar for oil

One of today's more fascinating examples of a widespread misunderstandings of cause and effect is that of the relationship between the U.S. dollar and crude oil or, if you prefer, the larger definition of the same problem — the dollar vs. commodity prices.

Commodity prices are down over the last two years, but not because the dollar is strong. They are down because there is too much supply and not enough demand. That causes commodity-related currencies — such as the Brazilian real, Russian ruble, South African rand, and the Canadian and Australian dollars — to be weak against the U.S. dollar (from a long-term perspective, not a couple of months).

Then, there is the issue of the tapering of QE and the threat of more rate hikes in the U.S. (which should be cancelled, in my opinion), plus the acceleration of QE in the eurozone and Japan, and the global experimentation with negative interest rates.

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