For Oil Prices, Political Risks Dwarf the Dollar | WSJ

LONDON—Oil prices are trading at levels not seen since late 2014, defying what is often a considerable obstacle to crude and other commodities rallying: a stronger dollar.

A firmer greenback can make dollar-denominated commodities like oil more expensive for buyers who hold other currencies, thus reducing demand for crude and putting a cap on its price. This inverse relationship has been axiomatic for oil markets. But lately, bolstered by geopolitical risks to supply and shrinking global stockpiles, crude-oil prices have been marching north with little regard for a stronger U.S. currency.

Over the past month, Brent crude, the global benchmark, has climbed close to 10% to hover around $80 a barrel for the first time in more than 3½ years. The U.S. currency has risen close to 3% during the same period, according to The Wall Street Journal Dollar Index, which measures the greenback against a basket of 16 of its peers.

From mid-March 2006 through 2012, oil prices tended to move in the opposite direction of the dollar, hitting a 70% inverse correlation in the 52 weeks ended Oct. 10, 2008.

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For Oil Prices, Political Risks Dwarf the Dollar – WSJ.