Wednesday, June 18, 2008

The Comparative Price of Oil

As the price of a barrel of oil skyrockets and the value of the US dollar against the euro plummets, I wondered what the price of oil in euro terms was doing. I thought perhaps the steep rise in the price of oil, traded in dollars, might be attributable merely to the falling relative value of the dollar. If when the euro and dollar were closer to parity, 30 euros or 30 dollars bought a barrel of oil, perhaps Europeans were still bidding around 30 euros for a barrel of oil, but that meant US customers had to increase their dollar bids to keep up with the value of the euro. Maybe Europeans were still paying the same in euro terms for a barrel of oil as they had been for a while.

So last month I searched around the internet for historic oil prices, and dollar to euro exchange rates. Then I graphed out the price of a barrel of oil in both currencies from January 1st, 2000 to May 11th, 2008. It turns out a barrel of oil does cost more in both dollar terms and euro terms, though it costs relatively more in dollar terms.

Then I started wondering about other commodity prices compared to oil. I happened to see a TV ad for someone hawking silver investments who claimed a barrel of oil cost the same in ounces of silver terms as it had in the 1970s. So I thought I'd check out the prices of a barrel of oil in silver terms since 2000 too. It turns out the silver investor is right: a barrel of oil still costs a little more than 6 ounces of silver as it did in 2000, though there have been some ups and downs.

So then I wondered if this held for gold too. It turns out gold hasn't held up quite as well as silver in barrels of oil terms. It now takes a little more gold to buy a barrel of oil than it did in 2000.