Why does the price of crude oil increase every time the fed cuts the interest rate?
The world over, oil is priced in US dollars- hence the term petrol-dollars. In other words, the US dollar is the functional currency in most all oil transactions. When the Fed loosens monetary policy (i.e. lowers the TARGET Fed Funds Rate), the supply of US dollars increases and its value falls. Now, since oil is priced in US dollars and the dollar is cheaper relative to other currencies, oil is cheaper for countries that don’t use the US dollar. All else equal, this increases their demand for oil, which increases the price of oil.
