Oil, OPEC, and the Greenback
December 7th, 2006 by Justin
Oil is big news, and these days movements in the US Dollar–known euphemistically as the greenback–are as well. It’s rare, however, that the dollar is at risk of being affected by a meeting of the Organization of the Petroleum Exporting Countries (OPEC). That may change next week.
OPEC has been in the news of late for claiming to cut their oil output substantially, but effectively cheating at those output cuts. This allowed the slide in oil prices (which dropped from over $78/barrel in recent months to 55 recently) to continue unabated. OPEC members are once again discussing output cuts, but the forex-related news is that have also have been hurt by the recent slide in the dollar, and may react to it.
In their meeting next week, they are set to discuss the double whammy that has hurt their collective economies: lower oil and a lower dollar. The dollar matters to them because oil is priced in terms of dollars, and thus they take payment in USD for their oil exports. They are receiving fewer dollars given oil’s decline, and to boot those dollars are worth less to them in terms of virtually any other currency in recent weeks.
Exactly what OPEC’s discussion will mean for the USD or other currencies is unclear at this point, but one thing is certain: few in the forex markets are accustomed to expecting large moves in FX resulting from OPEC meetings. They leave analysis of the oil exporters’ words to NYMEX and ICE crude traders. This time, however, with the dollar’s slide a sensitive issue for many exporting economies, their words may have a greater impact. All I can say at this point is: be vigilant, you may see some action following the release of their report.
