Venezuela's oil accounts to dump the dollar


By Steven Bodzin
Bloomberg News Service
Monday, September 17, 2007

CARACAS, Venezuela -- Venezuelan President Hugo Chavez instructed Petroleos de Venezuela SA, the state oil company, to convert its investment accounts from dollars to euros and Asian currencies to reduce risk.

The decision may help weaken the dollar as the Federal Reserve prepares to lower interest rates this week, said Philip Wee, an economist at DBS Bank Ltd. in Singapore. The currency has fallen against 14 of the 16 most-active over the past year, partly as governments signaled they may diversify their holdings away from the U.S., the world's primary destination for reserves.

Venezuela moved some of its reserves into euros last year, along with other oil producers including the United Arab Emirates, Kuwait and Qatar. The $50 billion Qatar Investment Authority said Sept. 4 it was looking for options in Asia to counter a weak dollar. China is starting a fund to look for higher returns on some of its almost $1.4 trillion holdings.

"Central banks will be switching more of the dollar into other currencies," said Wee, senior currency economist at DBS. "This should be another negative in a trend that's already set in the interest-rate outlook" and the Fed may lower borrowing costs to 4.75 percent by year-end from 5.25 percent, he said.

Chavez, speaking in his weekly address on national television yesterday, said the U.S. has bought goods from around the world, paying with paper that is "a bubble." The president said he instructed Energy and Oil Minister Rafael Ramirez to change currencies after the Fed increased the U.S. money supply to alleviate a shortage of cash sparked by concerns about debt backed by sub-prime mortgages.

The dollar traded at $1.3883 per euro at 7:20 a.m. in London from $1.3875 late in New York on Sept. 14. It reached $1.3927 on Sept. 13, the lowest since the single European currency was introduced in 1999. The dollar may weaken to $1.40 per euro by year-end, Wee forecasts.

The world's oil trading system has primarily used dollars for decades. Iran in July requested yen rather than dollars for all shipments to Japan, boosting that currency.

Petroleos de Venezuela had $23 billion in current assets, including $1.88 billion in cash, $848 million in restricted cash and $9.55 billion in accounts receivable, at the end of 2006, according to its audited financial statement. In addition, the company finances the national development fund known as Fonden, which held $27.3 billion as of May 11.

Chavez speaks frequently about the need to increase his country's independence from the U.S., which he calls "the empire." He has sought to diversify his country's customer base for oil by signing supply contracts with Japan and China.

Oil Minister Ramirez said Sept. 11 that Venezuela and China will work together on a $10 billion project to build six refineries and a shipping company to make Venezuela one of China's most important suppliers. Still, the U.S. continues to import 1.36 million barrels a day of crude and refined products from Venezuela, more than half its estimated 2.4 million barrels a day of output.

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