Important concept to understand in an input goods Train Wreck and Inflation. Strong currencies provide some price shock protection:
Reuters
UPDATE - Weak dollar means cheaper oil for euro,yen holders
Monday March 1, 12:53 pm ET
By Barbara Lewis
LONDON, March 1 (Reuters) - Crude oil prices on Monday hit new post-Iraq war highs, but as the dollar slides against major currencies, oil consumers in Japan and Eurozone countries are effectively paying much less for their fuel than a year ago.
U.S. light crude (CLc1) on Monday hit its highest level since the last March's U.S.-led invasion of Iraq. But converted to euros (EUR=), which has this year hit record highs against the dollar, prices are around 14 percent lower than a year ago.
Translated into the Japanese yen (JPY=), the effect is less spectacular, but still the price of U.S. crude is around nine percent below year-ago levels, using Reuters data.
The euro was last trading at $1.2442 and the dollar was worth 108.95 yen. U.S. Energy Secretary Spencer Abraham last week expressed concern that OPEC (News - Websites) has declined to increase supply quotas even though oil prices have stayed above the cartel's $22-$28 target band for many months.
The value of the OPEC basket has been above the $22-$28 target range for well over 100 days over the past eight months but if the price is adjusted to reflect the value of the dollar against the rising euro, prices fall back into range.
"Over the same period, the value of the OPEC basket in euros has stayed within a $22 to $28 band on all bar just two trading days, and on those two days it was below the band," said analyst Paul Horsnell of Barclays Capital.
STABLE EURO PRICES
It's a pattern that has become firmly established during oil's four-year price boom.
Average oil import prices to the United States over the last three years were remarkably stable in euro terms, said Oystein Noreng, professor of Petroleum Economics and Management at the Norwegian School of Management.
He cited figures calculated by online trading site GoldMoney, which found the average oil price in euro terms for U.S. imports of crude oil was just below $24 for the last three years.
"Oil is still priced in dollars, but OPEC is calculating the prices in euro," said Noreng.
Other analysts are cautious about drawing any conclusions.
"It's just a bizarre statistical coincidence," said Horsnell. "It does not imply that the target band has been secretly switched into euros, or that the dollar has lost its primacy in the oil market."
OPEC ministers have said that the slide in the dollar's value means producers need stronger prices for dollar-denominated oil sales to protect their purchasing power. The cartel has insisted it is sticking to its $22-$28 target.
Analysts say there is little danger OPEC would abandon dollar pricing for oil, partly because it does not want to incur U.S. hostility and partly because of the deep conservatism of the oil markets.
"OPEC clearly feels that a higher dollar price is justified because of the currency factor," said Richard Savage of Bank of America wrote in a report. "However, it seems unlikely that it will change the formal definition of the price at this time." |
