How does the value of the dollar affect oil prices?

Do oil prices go up with a weakening dollar because imports are more expensive? Also, what do people mean when they say oil is traded in dollars (as in what are the ramifications of that)?How does the value of the dollar affect oil prices?
Oil being traded in dollars means that say Venezuela receives payment for the oil it exports in US$. WHat it means is that if the $ is stable, then the Venezuelan economy can have a very good idea of how much they will make from their oil exports and how much they can pay their civil servants and so on...





In fact many products are traded in US$. Now what that implies is that many countries (most) keep their reserves in terms of US$. So in case of emergency they can finance their expenditures easily. This gives the US a big advantage.





You see, the US has been running balance of payment deficits for the longest time. This means the US eats more than what it produces. For all other countries that would mean that the currency should devalue so that the exports become cheaper and increase, while imports become more expensive and decrease. Also some countries sell off assets for the purpose of financing the deficit. However the US has another solution, It issues bonds, the other countries buy these bonds to add to their reserves, financing the US deficit. Hence the US eats more than what it produces and gets other countries to pay for it!





It's even better. Since a large chunk of everybody's reserves are in US$, these countries do not want the US$ to depreciate too much since their own reserves will lose value. Hence they keep on buying bonds.





The US has a money printing machine!





The ramifications of that are that the US can run a deficit almost for ever. However, the Euro is now a contender as reserve currency. The Euro zone is big, stable and diverse, much like the US. Hence the Euro allows countries to diversify their reserves and decrease their dependency on the US. This means that if teh Euro becomes more and more accepted, the US might have to start eating less, or working harder and the children of today in the US would have to start paying the debt of their parents and grandparents. Afterall there is interest to be paid on bonds, and if you can't keep rolling them over, you will have to pay the debt.





Now for oil prices, as they are traded in US$, when the US$ weakens, in terms of Euros, the countries exporting oil get less. The more they tarde in Euros, the harder they are hit. FOr example say 1 barrel of oil is $100 and that's 100 Euros and I can buy 25 bottles of wine from France. If the US$ depreciates to 1US$=1/2 Euro, all of a sudden, I only get 50 Euros and can only get 12 bottles of wine or so in exchange for my oil. All because the US$ depreciated. Hence I will react by asking for more US$ for my barrel of oil. Oil price in US$ goes up, even if in Euros it might remain almost the same.





Hope that helped.How does the value of the dollar affect oil prices?
I agree, I think oil price goes up when the value of USD fall downs
yes, oil would be more expensive with a falling US dollar.





The USD is used to trade oil futures as it probably the most dominant currency in use today. Most countries hold a great deal of their foreign exchange funds in US dollars as it seen as being stable ini a relative sense compared to other currencies around the world
To summarize Ekonomix's thorough answer(and to get some points):





Oil prices go up because the cartel of oil countries (OPEC) that are paid in dollars ';raise'; crude oil to compensate for the loss they take by accepting the weakening dollar.





Sometimes those countries achieve that by cutting the output of crude oil.





One thing you can deduce from this is that the popular belief about oil companies raising oil prices is unfounded.