How long before Opec decides to price oil in euros?
How long before Opec decides to price oil in euros? By Andy Granger Published: June 2 2004 5:00 | Last Updated: June 2 2004 5:00
From Mr Andy Granger.
Sir, With a forecast further reduction in the value of the dollar (ft.com May 28), is it any wonder that the Organisation of Petroleum Exporting Countries refuses to increase oil production rates? Politics apart, why sell more of a valuable and limited commodity, priced in a currency that is showing considerable weakness, when by holding production steady there is some chance of increasing production when the dollar recovers?
The spot price of a barrel of West Texas Intermediate (WTI) crude, the US benchmark grade, has increased from $25 at the end of May 2002 to $40 today - a 60 per cent rise. In euro terms, that equates to a more modest increase from 26.88 to 32.66 - a 21 per cent rise. Does the market effectively "price in" the future value of the dollar?
I am suddenly more sympathetic to the American consumer. I have read several articles in the FT recently about how the rapid rise in pump prices represents an extra "tax" on the American motorist, and until today I took the attitude that, as the American motorist chose to consume petrol in ever-increasing quantities, the price rise was a commodity price issue alone.
Clearly it is not so simple. As inadequate fiscal policy in the US and a growing trade deficit have lead to a weakening dollar, the extra dollars paid for imports are indeed a surrogate tax paid not to the state but to the producing countries.
The Iraqi government took the decision prior to the Iraq war to price its oil output in euros. Whilst clearly inflammatory to the US, this strategy showed a clear understanding by Iraq of the risks of pricing a commodity in a weakening currency. The euro is billed as a stable if unexciting currency. However the euro area has a strong trade surplus and is not burdened by consumer debt. How long before Opec decides to price in euros?
Andy Granger Bergeijk, Netherlands