The Fed Is Driving Down Oil Prices

We have already seen some flashpoints flare up this year as a result of both higher fuel prices and currency problems, and while there are always multiple causes to such events, the strength of the U.S. dollar cannot be discounted. In Argentina, the peso lost nearly a quarter of its value relative to the dollar, forcing the government to seek a financial rescue from the IMF. In Brazil, crippling protests over high fuel prices paralyzed the country – prices were particularly painful for the truckers staging the strikes because Brazil’s currency lost nearly 15 percent of its value relative to the dollar, exacerbating the rise in oil prices.
“Currency risks are also mounting for several emerging market economies and some OECD countries,” the IEA wrote in its report. “For example, between the start of April and the end of May, the Argentinian peso has depreciated by 24% versus the US Dollar, the Brazilian real by 12.6%, the Mexican peso by 9.7%, the Russian ruble by 9.2%, the Turkish lira by 14.4%, the South African rand by 7.3% and the euro by 5.4%.”
This currency turmoil threatens oil demand growth. “These depreciations forced some countries to increase interest rates to defend their currency, which could weigh on growth in due course,” the IEA concluded.