If dollar weakens, oil price appreciates How? Relation between dollar and oil prices
Lets say today 1$=50 Rs and price of one barrel of oil is 100$.
Means, if you sell 1 barrel of oil, you get 100$ (or 5000 Rs.)
so by selling 1 barrel, you can buy stuff worth 5000 Rs. from Indian market.
But next week, dollar weakens and it stands at 1$=40Rs.
If you still sell your one barrel @100$ then you can buy stuff worth
Rs.4000 only. So what should you do to keep your profit margin same?...Obviously
increase the price of 1 barrel of oil to 125$. (because $125*40=5000 Rs.)
In short, dollar has weakened, means its purchasing power has declined in the international market. Now you can buy less stuff from Chinese, European or Indian market using that 1 dollar compared to earlier times, when Dollar was stronger.
Since you're selling your barrel in the dollar currency, you must increase the price of your oil-barrel to maintain your profit margin and standard of living the same. (else you'll have to cut down on your expenses like the chauffeur for your limo or the number of workers in your oil-well.)
Means, if you sell 1 barrel of oil, you get 100$ (or 5000 Rs.)
so by selling 1 barrel, you can buy stuff worth 5000 Rs. from Indian market.
But next week, dollar weakens and it stands at 1$=40Rs.
If you still sell your one barrel @100$ then you can buy stuff worth
Rs.4000 only. So what should you do to keep your profit margin same?...Obviously
increase the price of 1 barrel of oil to 125$. (because $125*40=5000 Rs.)
In short, dollar has weakened, means its purchasing power has declined in the international market. Now you can buy less stuff from Chinese, European or Indian market using that 1 dollar compared to earlier times, when Dollar was stronger.
Since you're selling your barrel in the dollar currency, you must increase the price of your oil-barrel to maintain your profit margin and standard of living the same. (else you'll have to cut down on your expenses like the chauffeur for your limo or the number of workers in your oil-well.)
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