Loading ...
Sorry, an error occurred while loading the content.

OPEC Has Already Turned to the Euro

Expand Messages
  • Vigilius Haufniensis
    As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period.
    Message 1 of 2 , Jun 6, 2004
    • 0 Attachment

      As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.

      http://goldmoney.com/en/commentary/2004-02-18.html

      OPEC Has Already Turned to the Euro

      As the dollar's rate of exchange continues to fall against the world's major currencies, there has been much speculation about the likely knock-on effect. One area receiving a lot of attention is crude oil in general, and OPEC in particular.

      It has been suggested that OPEC may begin pricing crude oil in terms of the euro, and further, that OPEC may actually begin invoicing its crude oil exports in terms of euros. This latter step would require shifting out of dollars, with OPEC receiving euros in payment.

      These possibilities have been scoffed at by many whose interests are tied to the fate of the dollar, but it seems that OPEC has already taken the first step - it appears to be pricing crude oil in terms of the euro. This conclusion is apparent from the following table. The import data is from the Department of Commerce report entitled U.S. International Trade in Goods and Services. The source for the euro exchange rate is the Federal Reserve, and I have calculated the euro's average exchange rate to the dollar for each year based on daily data.

      US Imports of Crude oil
      (1)
      (2)
      (3)
      (4)
      (5)
      (6)
      Year
      Quantity (thousands of barrels)
      Value (thousands of US dollars)
      Unit price (US dollars)
      Average daily US$ per € exchange rate
      Unit price (euros)

      2001

      3,471,066
      74,292,894
      21.40
      0.8952
      23.91
      2002
      3,418,021
      77,283,329
      22.61
      0.9454
      23.92
      2003
      3,673,596
      99,094,675
      26.97
      1.1321
      23.82

      We can see from column (4) in the above table that in 2001, each barrel of imported crude oil cost $21.40 on average for that year. But by 2003 the average price of a barrel of crude oil had risen 26.0% to $26.97 per barrel. However, the important point is shown in column (6). Note that the price of crude oil in terms of euros is essentially unchanged throughout this 3-year period.

      As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.

      The US also imports oil from non-OPEC countries, but these countries have the same economic interest as OPEC. They too want to preserve their purchasing power of the crude oil they exchange for dollars, so they would logically be amenable to OPEC's apparent pricing scheme.

      Thus, it seems clear that OPEC and the other oil exporters are already pricing crude oil in terms of euros, at least tacitly. Whether they start invoicing their crude oil sales in terms of euros remains to be seen.

      The above table is also interesting for another reason. Column (3) shows that the import cost of crude oil has risen by approximately $25 billion from 2001 to 2003. This increase has directly added to the trade deficit. Therefore, the dollar has entered a vicious circle. As the dollar declines, the oil exporters raise the cost of their oil to protect them from a loss of purchasing power, and this rise in the price of crude oil further worsens the trade deficit, which causes the dollar to weaken further and the oil exporters to raise prices yet again.

      Last week the US reported a record trade deficit for 2003 of -$489.4 billion, -$71.3 billion greater than the 2002 deficit of -$418.0 billion, which was the previous record. Crude oil imports therefore represent 20.2% of the total deficit. This amount rises to 26.5% if other energy related petroleum products also imported are included with crude oil imports. One can therefore conclude that as the price of crude oil and other petroleum products rises to offset the weak dollar, the trade deficit will worsen. So can a weak dollar really reduce the trade deficit?

      Given the apparent action by the oil exporters to offset the weak dollar, the portion of the trade deficit related to petroleum products (26.5% in 2003) will not be affected, assuming the oil exporters continue to raise prices to offset the weaker dollar.

      In recent years the mantra of numerous Treasury secretaries has been that a strong dollar is in the best interests of the US. This analysis of petroleum imports presents one reason why that truism is correct. The oil exporters will not be cheated by a weaker dollar.

      ___________________________________________

      Published by GoldMoney
      Copyright © 2004. All rights reserved.
      Edited by James Turk, alert@...

      This material is prepared for general circulation and may not have regard to the particular circumstances or needs of any specific person who reads it. The information contained in this report has been compiled from sources believed to be reliable, but no representations or warranty, express or implied, is made by GoldMoney, its affiliates, representatives or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report reflect the writer's judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. To the full extent permitted by law neither GoldMoney nor any of its affiliates, representatives, nor any other person, accepts any liability whatsoever for any direct, indirect or consequential loss arising from any use of this report or the information contained herein. This report may not be reproduced, distributed or published without the prior consent of GoldMoney.

    • Vigilius Haufniensis
      As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period.
      Message 2 of 2 , Oct 11, 2004
      • 0 Attachment

        As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.

        http://goldmoney.com/en/commentary/2004-02-18.html

        OPEC Has Already Turned to the Euro

        As the dollar's rate of exchange continues to fall against the world's major currencies, there has been much speculation about the likely knock-on effect. One area receiving a lot of attention is crude oil in general, and OPEC in particular.

        It has been suggested that OPEC may begin pricing crude oil in terms of the euro, and further, that OPEC may actually begin invoicing its crude oil exports in terms of euros. This latter step would require shifting out of dollars, with OPEC receiving euros in payment.

        These possibilities have been scoffed at by many whose interests are tied to the fate of the dollar, but it seems that OPEC has already taken the first step - it appears to be pricing crude oil in terms of the euro. This conclusion is apparent from the following table. The import data is from the Department of Commerce report entitled U.S. International Trade in Goods and Services. The source for the euro exchange rate is the Federal Reserve, and I have calculated the euro's average exchange rate to the dollar for each year based on daily data.

        US Imports of Crude oil
        (1)
        (2)
        (3)
        (4)
        (5)
        (6)
        Year
        Quantity (thousands of barrels)
        Value (thousands of US dollars)
        Unit price (US dollars)
        Average daily US$ per € exchange rate
        Unit price (euros)

        2001

        3,471,066
        74,292,894
        21.40
        0.8952
        23.91
        2002
        3,418,021
        77,283,329
        22.61
        0.9454
        23.92
        2003
        3,673,596
        99,094,675
        26.97
        1.1321
        23.82

        We can see from column (4) in the above table that in 2001, each barrel of imported crude oil cost $21.40 on average for that year. But by 2003 the average price of a barrel of crude oil had risen 26.0% to $26.97 per barrel. However, the important point is shown in column (6). Note that the price of crude oil in terms of euros is essentially unchanged throughout this 3-year period.

        As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.

        The US also imports oil from non-OPEC countries, but these countries have the same economic interest as OPEC. They too want to preserve their purchasing power of the crude oil they exchange for dollars, so they would logically be amenable to OPEC's apparent pricing scheme.

        Thus, it seems clear that OPEC and the other oil exporters are already pricing crude oil in terms of euros, at least tacitly. Whether they start invoicing their crude oil sales in terms of euros remains to be seen.

        The above table is also interesting for another reason. Column (3) shows that the import cost of crude oil has risen by approximately $25 billion from 2001 to 2003. This increase has directly added to the trade deficit. Therefore, the dollar has entered a vicious circle. As the dollar declines, the oil exporters raise the cost of their oil to protect them from a loss of purchasing power, and this rise in the price of crude oil further worsens the trade deficit, which causes the dollar to weaken further and the oil exporters to raise prices yet again.

        Last week the US reported a record trade deficit for 2003 of -$489.4 billion, -$71.3 billion greater than the 2002 deficit of -$418.0 billion, which was the previous record. Crude oil imports therefore represent 20.2% of the total deficit. This amount rises to 26.5% if other energy related petroleum products also imported are included with crude oil imports. One can therefore conclude that as the price of crude oil and other petroleum products rises to offset the weak dollar, the trade deficit will worsen. So can a weak dollar really reduce the trade deficit?

        Given the apparent action by the oil exporters to offset the weak dollar, the portion of the trade deficit related to petroleum products (26.5% in 2003) will not be affected, assuming the oil exporters continue to raise prices to offset the weaker dollar.

        In recent years the mantra of numerous Treasury secretaries has been that a strong dollar is in the best interests of the US. This analysis of petroleum imports presents one reason why that truism is correct. The oil exporters will not be cheated by a weaker dollar.

        ___________________________________________

        Published by GoldMoney
        Copyright © 2004. All rights reserved.
        Edited by James Turk, alert@...

        This material is prepared for general circulation and may not have regard to the particular circumstances or needs of any specific person who reads it. The information contained in this report has been compiled from sources believed to be reliable, but no representations or warranty, express or implied, is made by GoldMoney, its affiliates, representatives or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report reflect the writer's judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. To the full extent permitted by law neither GoldMoney nor any of its affiliates, representatives, nor any other person, accepts any liability whatsoever for any direct, indirect or consequential loss arising from any use of this report or the information contained herein. This report may not be reproduced, distributed or published without the prior consent of GoldMoney.

      Your message has been successfully submitted and would be delivered to recipients shortly.