We present an interesting paper out of the James A. Baker institute at Rice University. Its authors, Kenneth B. Medlock III and Amy Meyers Jaffe contend that the presence of speculators in the oil market has exploded since the Commodities Futures Modernization Act of 2000.
This particular chart caught our eye. It shows the correlation between the US dollar and the price of West-Texas Intermediate crude before and after the regulation was passed. What it suggests is that previously the dollar and the price of crude weren’t particularly linked, but that they’ve become very much so (when crude is up, the dollar is down) post-deregulation. Thus, the authors warn of a dangerous spiral whereby the dollar continues to weaken, oil continues to rise, our trade deficit continues to widen, weakening the dollar further, etc.
You can download the full report here (.pdf)
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.