OPEC Abandons U.S. Dollar
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From: MoneyNews.com [mailto:newsmax@reply.newsmax.com]
Sent: Saturday, December 16, 2006 2:13 PM
Subject: OPEC Abandons U.S. Dollar

 

 

Headlines (Scroll down for complete stories):
1. OPEC Abandons U.S. Dollar
2. Greenspan: More Dollar Weakness Ahead
3. Official: OPEC Split Over Further Oil Cuts
4. Rogers Still Stocking Up on Commodities





 1. OPEC Abandons U.S. Dollar

Oil-producing countries have reduced their dollar holdings to the lowest level in two years and shifted oil income into other currencies, according to the Bank for International Settlements.

Members of the Organization of Petroleum Exporting Countries and Russia reduced their dollar holdings from 67 percent in the first quarter to 65 percent in the second quarter.

At the same time, they increased their holdings of euros from 20 percent to 22 percent, the BIS said. They also boosted holdings of the yen and British pound.

Eighteen months ago, the oil-producing countries’ exposure to the dollar was above 70 percent.

"The revelation in the latest BIS quarterly review . . . confirms market speculation about a move out of dollars and could put new pressure on the ailing U.S. currency," the Financial Times reports.

The BIS, the central bank for the developed world’s central banks, disclosed that OPEC’s dollar deposits fell by $5.3 billion, while euro and yen-denominated deposits rose $2.8 billion and $3.8 billion, respectively.

The last time oil-exporting countries reduced their exposure to the dollar — in late 2003 — it pushed the euro to an all-time high against the dollar.

The BIS noted: "While the data are not comprehensive, they do appear to indicate a modest shift over the quarter in the U.S. dollar share of reporting banks’ liabilities to oil exporting countries."

According to the Times, "the dollar has suffered weakness because of concerns about global imbalances and the future course of the Federal Reserve’s interest rate policy."

Editor's Note:




2. Greenspan: More Dollar Weakness Ahead

The U.S. dollar will stay weak for the next few years, according to former Federal Reserve Chairman Alan Greenspan. Greenspan blames the U.S. balance of payments deficit for the prolonged frailty of the dollar.

“I expect that the dollar will continue to drift downwards until there will be a change in the U.S. balance of payments,” remarked Greenspan, who spoke via video-link to a business conference in Tel Aviv.

“There has been some evidence that Organization of Petroleum Exporting Countries nations are beginning to switch their reserves out of dollars and into euro and yen,” continued Greenspan.

MoneyNews told readers yesterday that the Bank for International Settlements, which is known as the “central banks’ central bank,” reported a decline in U.S. dollar reserves in OPEC countries as well as oil exporter Russia.

“It is imprudent to hold everything in one currency,” advised Greenspan, who sounded like he was talking down the dollar. In fact, Greenspan added that at some point the dollar would decline in value.

"That [a falling dollar] will be the experience of the next few years," Greenspan said.

 Editor's Note:




3. Official: OPEC Split Over Further Oil Cuts

A narrow majority of OPEC members want to cut the group's oil output further when they meet in Abuja on Thursday, a top OPEC official said on Monday.

Hasan Qabazard, OPEC's director of research, said his view was OPEC should wait to judge the full impact of its existing 1.2 million barrels per day reduction before cutting again.

Asked how many countries backed supply curbs, he told Reuters in an interview: "I put it at 60/40."

"I see mixed signals. Some ministers believe there should be cuts but some other ministers believe the market is balanced."

He listed Saudi Arabia, Algeria, the UAE and Qatar among those countries favoring supply curbs of at least 500,000 barrels per day. At an emergency meeting in October, OPEC decided to remove 1.2 million bpd from the market after a 25 percent drop in the oil price from its $78.40 mid-July peak. "I would prefer that we wait until January to see how our cuts in Doha take effect . . . prices have gone up a little bit."

He raised the possibility of price spikes during the northern hemisphere winter when demand peaks.

"You don't want to have the price go up drastically. That might be harmful for economies," he said.

Prices have rallied from a low of $54.88 on Nov. 17 for U.S. crude to more than $61 a barrel, above OPEC's undeclared price target of $60 a barrel — $55 for OPEC's basket of crude.

Sixty a Barrel Fair for All

Qabazard said a $60 a barrel price did not risk harming the world economy and enabled OPEC countries to invest in oil infrastructure.

"$60 for WTI seems to be a good price. This price has also promoted investments in the upstream, in the refining sector."

While price is significant, he said OPEC's real concern was balancing supply and demand. He said estimated excess supply of between 500,000 and 700,000 bpd — assuming full compliance with curbs agreed in October — was not a worry now.

It could swell to 1.2 million bpd and become a problem when demand falls during the second quarter, especially if non-OPEC producers come close to meeting expectations of 1.8 million bpd growth.

"The worry is that in the second quarter of 2007 we'll have a lot more supply than demand," the OPEC official said.

Cuts in place have gone some way towards draining oil stocks in the industrialized world that rose to 2.76 billion barrels, equivalent to 55 days of demand, in September versus 2.64 billion the previous year, or 53 days of demand.

Qabazard said he considered 52 days of forward supply reasonable.

Stocks in industrialized nations are about 100 million barrels above the five-year average, he said, while U.S. commercial inventories were 20 million barrels above the five-year average. U.S. stocks of distillates, including heating oil, were bang on the five-year average for the season.

Dollar Continues Downward

Some OPEC members have expressed concern at the weakness of the dollar. The dollar has fallen 11 percent this year versus the euro, eroding the purchasing power of OPEC's revenues from the dollar-denominated oil market.

"The decline of the dollar is a concern because the U.S. economy is a concern. Normally the world economy follows the U.S. economy, but we have seen evidence of a decoupling of the European and Asian economies from the United States so the worry is less," Qabazard said.

"We see lots of risks in the U.S. economy next year but we also see positive signs, so we hope that next year the dollar will come back up. It's at very low levels and I don't think it will decline more than it already has."

© 2006 Reuters.

Editor's Note:




4. Rogers Still Stocking Up on Commodities

Commodities guru Jim Rogers is so bullish on China that he’s considering moving his family there from New York — and he’s teaching his 3-year-old daughter Chinese.

He has already labeled the furniture and appliances in his Manhattan apartment in both English and Chinese to help his daughter learn the language.

Not surprisingly, Rogers — co-founder of the Quantum Fund and creator of the Rogers International Commodity Index (RICI) — is also bullish on commodities, despite their recent downturn.

Rogers views the dip in commodity prices, including oil and copper, as buying opportunities. He told Morgan Stanley clients in a recent address that the downturn is only a short-term adjustment in a still-rising market, driven in recent years by China’s voracious appetite for everything from gold to concrete.

He also noted that agricultural commodities such as corn and wheat are hitting multiyear highs, according to The Wall Street Journal.

But Rogers is anything but bullish on the dollar. He said the greenback’s decline "is going to mess up our standard of living drastically."

He’s already stocked his daughter’s portfolio with commodities and Swiss francs, believing that when she turns 18 in 2021, the dollar may no longer be the world’s preferred currency.

Rogers, his wife, and daughter have spent the last two summers in China and are hunting for a permanent home, perhaps in the city of Dalian, home to one of China’s three commodities exchanges, the Journal reports.

But the recent downturn in housing prices may put a damper on those plans. Rogers said he won’t move to China until he sells his Manhattan apartment, bought in 1977 for $107,000. Asking price: $15 million.

Editor's Note:




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