Weak dollar will figure in OPEC's decision on production


OPEC to take weak dollar into account

By Ghaida Ghantous and Karin Strohecker
Monday, December 4, 2006


OPEC is worried by a fall in the dollar that is eroding member states' purchasing power and ministers will take up the issue when they meet next week to discuss new output curbs.

On Monday the dollar hit a 20-month low against the euro, punishing producers who sell their oil in dollars, when they buy goods and services from Europe.

Most OPEC ministers are leaning toward cutting production beyond the 1.2 million barrels per day (bpd) they agreed in October to reduce high inventories. A weak dollar provides another argument for trimming supply and supporting prices.

"The dollar is not helping (matters). It affects revenue. If there is a significant drop, it is of concern to us," United Arab Emirates' Oil Minister Mohammed al-Hamli told Reuters. "But as producing countries we look at market fundamentals."

The Organization of the Petroleum Exporting Countries meets on December 14 in Nigeria.

Many in the group still view the market as imbalanced and support a further cut of 500,000 bpd to one million bpd. Influential Saudi Oil Minister Ali al-Naimi says an excess 100 million barrels must be removed.

Kuwait and Libya are alone in saying existing curbs are sufficient, especially with U.S. crude near $63 a barrel.

Oil has rallied $6 since OPEC agreed its reduction, the first in two years, at an emergency meeting in October. It was oil's rapid decline from a record $78.40 in mid-July that forced ministers then to wield the knife.

But the exporters' club is mindful that a further round of cuts may be needed to counter an anticipated surge in supply from rival non-OPEC producers and slowing economic growth in top consumer the United States.

"OPEC is in the process of taking up the challenge of a market that is clearly and steadily getting out of balance, after almost three years of a very strong bull run," said OPEC's acting Secretary-General Mohammed Barkindo in Vienna.

"At the moment our preoccupation is to ensure that this market is re-balanced and therefore our eyes are more on the level of stocks and its future prospect rather than on price."

The group that pumps more than a third of the world's oil is not defending a specific price target, Barkindo said.

"However, the value of the dollar is of significant importance," he said.

In the past, OPEC has said it needed higher oil prices to offset the impact of a falling dollar, but that was in late 2003 and early 2004 when U.S. crude was trading in the $30s.

Since August 1, when U.S. crude was trading at $74.91, close to its peak, dollar-denominated oil prices have fallen 15.3 percent, while in euro terms they have fallen by 18.5 percent.

"We cannot ignore the extremely soft dollar amongst other factors; stocks are very high," OPEC President Edmund Daukoru of Nigeria said.

"When people say prices are high, I say against what currency? It is a natural question."
Qatari Oil Minister Abdullah al-Attiyah is also concerned by the dollar's dive, but said it would not dominate talks at OPEC.

"The main thing is supply and demand -- not the weak dollar," he said.

Analysts say OPEC may be more worried by forecasts of U.S. economic weakness that have contributed to the dollar's slide.

But Daukoru downplayed concerns over the health of the world's biggest energy consumer.

"We have the impression that there is some recovery around the corner," he said. "Overall the global economy has done well in spite of the peak (in oil prices) we hit recently," he said.

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