The U.S. Dollar Exchange Rate and the Demand for Oil

Using recent advances in panel data estimation techniques, we find that an appreciation of the U.S. dollar exchange rate leads to a significant decline in oil demand for a sample of 65 oil-importing countries. The estimated effect turns out to be considerably larger than the impact of a shift in the global crude oil price expressed in U.S. dollar. This finding appears to be the consequence of a stronger pass-through of changes in the U.S. dollar exchange rate to domestic end-user oil products prices relative to changes in the global crude oil price. Furthermore, we demonstrate the relevance of U.S. dollar fluctuations for global oil price dynamics.