Movements of Brent crude futures prices and movements in the dollar are the most tightly correlated they have ever been, Bloomberg reported Thursday, citing an analysis of Bloomberg Dollar Spot Index and Brent Crude Futures.
The article that the correlation between the Bloomberg dollar index and Brent is its highest ever, meaning the dollar is strengthening in close tandem with rises in oil prices and vice versa.
Brent prices have risen about 45% since the start of the Iran war, disrupting supplies through the subsequent closure of the Strait of Hormuz, a key transit point for about a fifth of the world's oil and gas.
At the same time the Bloomberg's dollar gauge has risen nearly 1%, with the correlation turning positive in early March and staying that way until now.
The story said the strong correlation between oil price movements and the dollar is due to geopolitics and risk appetite, overshadowing any other fundamentals that might otherwise have more influence.
This was visible on Thursday when the index increased 0.3% as Brent did roughly the same, with traders watching the meeting between the US and Chinese presidents.
The article notes that the relation had been negative between the dollar and oil prior to the start of the Iran war, with the trend flipping in early March days after the conflict began, and staying positive since.
The article quoted Chris Turner, head of foreign exchange strategy at ING Bank who wrote this week that the next moves in currencies will be driven by the direction of oil prices and central bank policies in the face of higher inflation.
During the oil crises of the 1970s, the US was a net oil importer and sharp rises in oil prices meant the dollar got weaker as more of them were handed over to the world's biggest oil suppliers.
Now the US is the world's biggest supplier and instead, it is import-reliant Asian economies watching their currencies weaken as they import dollar-priced crude.
The article, in a similar vein to other analyst reports, says that governments have been too slow to adopt renewable energy and boost security of supply with domestically-produced energy.
Instead, Asian countries are digging deficit holes in their budgets as they seek to shield their consumers from spikes in fuel costs and keep inflation under control.
The author says governments would achieve more by scrapping import taxes on electric cars than spending on subsidizing "years" of fuel imports.
It also says an embrace of cleaner energy could make this energy crisis the last that will be borne by some of the world's poorest who face higher costs to obtain gas for cooking.