Why a Weaker Dollar Means Higher Oil Prices

The dollar's tailspin since the Federal Reserve began to cut interest rates is giving an updraft to already bullish crude-oil futures, and analysts say that relationship will continue driving oil and the currency both in their current directions.

"The much larger structural story [of the oil price rise] is demand from emerging markets -- in particular, China -- but in recent months, the dollar has depreciated sharply," which has in turn pushed up crude to all-time highs, said David Powell, senior foreign exchange analyst at IDEAglobal.

Oil is produced in dozens of countries around the world, but its standard trading unit is in dollars per barrel.

"As the dollar declines in value, so does the price of oil in non-dollar terms," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon. "Consequently, foreigners bid up the price of oil and other dollar-denominated commodities. [READ MORE]