Bernanke’s QE Efforts Will Cost You at the Gas Pump

How high will oil prices go? They are headed northward. How long and how far, I can’t say of course. But given that the Federal Reserve has embarked on a Monetary Magical Mystery Tour as David Stockman recently put it, doing its best to debase the currency oil is denominated in, prices could go up quite a lot.

Add to the Fed’s actions the fact that the world’s major powers are posturing in the Middle East right now from southern Turkey to the northeastern tip of the Arabian peninsula and I have to say, things in the immediate future could prove very challenging.

Take a look at the this chart which shows the dollar (trade weighted) versus the price of oil on the world market.

For quite a long time oil and the dollar have had a pretty solid reverse correlation. If the Fed is debasing the dollar, we can expect higher fuel prices. Just in time for winter. I sure am glad I have natural gas. You folks in the Northeast who have oil heat, have fun with those bills.

Of course that’s after you’ve poured a tenth of your paycheck (hopefully not) into that spiffy used SUV you bought cheap after the last gasoline spike. You know the spike right before the financial crisis.

The dollar index spot is 78.976 at this moment. The current price per barrel of oil (WTI) is $96.99.  I’d say it looks like the correlation continues to hold.  If the Fed prints like it says it will, that annual trip to Grandma’s for Thanksgiving dinner is going to cost a lot more this year.