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The crash in oil prices might be about one simple thing

The crash in oil prices might be all about the dollar.

In a note to clients on Monday, Tobias Levkovich at Citi asked a simple question: what if the collapse in oil prices is all about the dollar?

Levkovich notes — as others have before — that the price of WTI crude and the value of the US dollar are inversely correlated, meaning that as one drops the other rises.

In this case we’ve seen a huge rally in the dollar over the last 18 months while the price of crude has collapsed.

And while we hear about a lack of demand, a glut of supply, and the collapse in commodity prices the world over potentially signalling all kinds of terrible things about the future of the world economy, if you’re looking for a root cause behind the drop in oil prices you might be overthinking than by going any further than your own wallet.

“While investors have been fixated on the demand dynamics of emerging markets bumping against excess supply derived from super cycle expansion programs, it seems as if the greenback can explain much of the movement,” Levkovich writes.

Levkovich adds (emphasis ours), “Investors have been focused on the US dollar but have tried to decipher something more elaborate for agricultural, mineral and crude products … Nonetheless, investors may just need to look at just one factor rather than a plethora of inputs.”

Just an idea.

Fredgraph (11)FRED

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