1. Paper presented in San Diego at AAPG National Convention.
Best Paper Award – Division of Professional Affairs, 1996
AAPG Bulletin, Volume: 80 (1996) Issue: 13. (Annual Mtg) First Page: A35 Last
Page: A36
Title: Historical Changes in U.S. Dollar Exchange Rate and Real Value of Oil:
ABSTRACT
Author(s): William D. DeMis
Abstract:
Oil prices relative to world currencies are now at unprecedented lows, as shown
by a price analysis that incorporates the effect of U.S. dollar exchange rates on
the value of oil. A commodity-based analysis corroborates this exchange-rate
analysis. The value of oil today on world markets is even below its 1969 level
(the nadir of the previous oil "bust").
The inflation-corrected price of oil (using the producer price index) in the U.S. has
increased 130% since 1969. However, the U.S. dollar has lost over 40% of its
value relative to G-7 currencies since abandonment of the Bretton Woods
agreement in 1971. Therefore, the real value of oil on international markets is
20% below its 1969 level. Since 1988 alone, the dollar has lost 16% relative to
the G-7 currencies. Oil producing countries are taking extreme revenue cuts
caused by the eroding U.S. dollar.
Gold provides a standard measure of a currency's strength. The value of oil has
dropped relative to gold. In 1969, one ounce of gold bought 11.50 barrels of oil in
dollars of the day. Today, one ounce of gold buys 20 barrels of oil.

2. The 1990s may be a repeat of the 1960s. From 1960 to 1972, real oil prices on
the international market decreased by 25%, thereby setting the stage for the
1970s price increases. Since 1988, real oil prices on the international market
have dropped 20%, but oversupply prevents offsetting price increases. Near
term, prices will drop further when Iraq resumes production. Attempts to shore up
prices will falter, much as the completely forgotten Arab oil embargo of 1967
failed because of excessive supply. Towards the end of this decade, as global oil
demand catches up with supply, there will be extreme pressure on oil producing
countries to steeply raise prices to "correct" for the dollar's drop, or possibly even
abandon the U.S. dollar as the basis for oil pricing.
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Copyright 1997 American Association of Petroleum Geologists