FROM Capitol Hill to Wall Street to the campaign trail, the recent surge in oil prices is quickly threatening to supplant the mortgage crisis as the country’s leading economic issue. Last week, prices for crude set another record, finishing at $125.96 a barrel on Friday, while gasoline prices closed in on $4 a gallon.

But even as the presidential candidates debate whether to cut federal gas taxes this summer and legislators look at other ways to ease prices at the pump, a harder-to-control factor is emerging as a main reason behind the increase in energy costs: the sinking dollar.


While no one disputes that China and other emerging economies are craving more crude, the stunning rise of oil from $62 a year ago is hard to explain as only a matter of supply and demand. After all, analysts have noted adequate inventories.

Over the same period, the dollar has declined nearly 15 percent against the euro, and the jump in oil prices “is very much driven by the dollar,” says Roger Diwan, a managing director at PFC Energy, a consulting firm in Washington.

Simply put, buying oil has become a way for hedge funds, pension funds and other institutional investors to offset their exposure to dollar-based assets like United States stocks and bonds, Mr. Diwan says. And many traders have followed the market’s momentum, aggravating the trend.