Oil: Back to $80 Per Barrel as Dollar Slides

Crude prices bounced above $80 per barrel once again on Wednesday, a level that even OPEC leaders have said is too high given the fragile state of the global economy.

FILE - In this Oct. 19, 2009 file photo, Jessica Szmauz, of Ipswich, N.H., fills her Jeep with gas...

FILE - In this Oct. 19, 2009 file photo, Jessica Szmauz, of Ipswich, N.H., fills her Jeep with gas at a fueling station, in Waltham, Mass. Oil prices hovered near $77 a barrel Monday, Nov. 2, 2009, in Asia after a big fall the previous trading session as investors eyed upcoming figures on the U.S. economy and a volatile dollar. (AP Photo/Steven Senne, file)

(AP)

And again it is the U.S. currency that is getting most of the blame.

The dollar gave up more ground against the euro early Wednesday. It continued to tumble after the Federal Reserve decided to keep a key interest rate at a record low in hopes of bolstering a fledgeling economic recovery. Rising energy prices show, however, that there can be side effects to that strategy.

A falling dollar tends to push crude prices higher. Oil is bought and sold with U.S. currency, and when the dollar drops, anyone holding euros or other strong currencies can essentially buy more oil for less.

Even with energy demand flat, the price of oil and gasoline are being driven higher.

Benchmark crude for December delivery added 80 cents to settle at $80.40 a barrel Wednesday on the New York Mercantile Exchange. In London, Brent crude for December delivery added 78 cents to settle at $78.89 on the ICE Futures exchange.

Earlier in the day, the Energy Information Administration reported that oil and gasoline supplies dropped, a surprise to most energy analysts who believed that the amount of unused crude in storage would grow.

The report sparked a brief rally in crude, yet it also raised questions about why energy prices are rising right now. It isn't refiners, who turn crude into fuel, who are buying it.

The demand for gasoline in the United States is flat compared with last year, and demand at this time last year was dismal.

The economic crisis was still unfolding and hurricanes in the Gulf of Mexico smothered gasoline sales. Gasoline prices were in free fall at this point last year, and the cost for a gallon of gas had dropped from $4.11 over the summer to $2.39 by Nov. 4.

It's a different story this year.