Falling dollar puts pressure on Opec
Wednesday, 25 July 2007
Javier Blas, FT Syndication Service
LONDON: The falling US dollar is lowering the Organisation of the Petroleum Exporting Countries' purchasing power by up to a third, making the powerful oil cartel more reluctant to increase production and cut prices.
Although oil is trading near last August's record $78.65 a barrel, Opec calculations show that, when adjusted for the weaker dollar and inflation, an average of the 12 Opec members' crude oil prices has fallen in the past year.
The adjusted "Opec basket price" averaged only $43.60 a barrel in June compared with $44.30 a barrel in the same month last year, according to the organisation's latest monthly report.
Growing trade between Opec members, especially in the Middle East and North Africa, and the European Union is aggravating the problem because the pound and the euro have risen.
The dollar last Monday fell to an all-time low against the euro of $1.3844 and a 26-year low against sterling, at more than $2.06.
Mohamed Bin Dhaen al Hamli, Opec president, said at its latest meeting three months ago that the cartel was "concerned about the continuing weakness of the US dollar" because "this is having a significant effect on the purchasing power of oil producing countries".
Since then, the dollar has continued to fall against the euro and sterling.
Eric Chaney, a Morgan Stanley economist, estimates that a 10 per cent drop in the dollar against major currencies cuts Opec's Middle East members' crude oil purchasing power by about 5.0 per cent.
LONDON: The falling US dollar is lowering the Organisation of the Petroleum Exporting Countries' purchasing power by up to a third, making the powerful oil cartel more reluctant to increase production and cut prices.
Although oil is trading near last August's record $78.65 a barrel, Opec calculations show that, when adjusted for the weaker dollar and inflation, an average of the 12 Opec members' crude oil prices has fallen in the past year.
The adjusted "Opec basket price" averaged only $43.60 a barrel in June compared with $44.30 a barrel in the same month last year, according to the organisation's latest monthly report.
Growing trade between Opec members, especially in the Middle East and North Africa, and the European Union is aggravating the problem because the pound and the euro have risen.
The dollar last Monday fell to an all-time low against the euro of $1.3844 and a 26-year low against sterling, at more than $2.06.
Mohamed Bin Dhaen al Hamli, Opec president, said at its latest meeting three months ago that the cartel was "concerned about the continuing weakness of the US dollar" because "this is having a significant effect on the purchasing power of oil producing countries".
Since then, the dollar has continued to fall against the euro and sterling.
Eric Chaney, a Morgan Stanley economist, estimates that a 10 per cent drop in the dollar against major currencies cuts Opec's Middle East members' crude oil purchasing power by about 5.0 per cent.