OilVoice - Weak Dollar Coupled with OPEC Output Decline Boosts Crude Prices

Weak Dollar Coupled with OPEC Output Decline Boosts Crude Prices

Monday, April 07, 2008

Crude oil was at an all time high for a second day in New York as a weak U.S currency compelled investors to purchase commodities. OPEC output declined for the first time last month since August.

Commodities like oil, gold and copper are in demand due to the declining dollar that has increased the appeal of these commodities as safe havens. The dollar has fallen by 7.4 percent when compared to the euro this year. It declined to a record low level of $1.5846 on March 26. The Organization of Petroleum Exporting Countries decreased its output by 0.3 percent in March. This was due to a fall in Nigerian production. The oil production in Nigeria has been lowest in almost five years according to Bloomberg News survey.

Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney said that “We still feel there's a lot of hot money moving in” to oil marketplace, further adding “Crude has held well above that $100 level” even as Western economies slow, he said.

Prices of crude oil for May delivery increased by 0.6 percent, that is 68 cents to $106.91 in after-hours electronic trading on the New York Mercantile Exchange. It was traded at the price of $106.55 a barrel at 2:52 p.m. after midday in Singapore.

The contract rose by 2.3 percent that is $2.40 to $106.23 a barrel on April 4. There was an upsurge in prices after a report showed that U.S employment dropped for a third month in March, forcing the dollar to drop further and increasing the investor demand for commodities as a safeguard against inflation.

Crude futures in New York climbed to 0.6 percent last week when the weekly U.S. Energy Department report showed a sudden decline in gasoline stockpiles. On April 5, Secretary General Abdulla El-Badri of OPEC reported that, there are adequate supplies of oil for global consumption and OPEC is not planning to review output before the September.

According to sources, OPEC pumped an average 32.35 million barrels a day, in previous month that went down by 85,000 barrels from February, as reported by a survey of oil companies, producers and analysts. For the month of February output was revised by 160,000 barrels a day. Overall productions by the 12 members with quotas declined by 30,000 barrels to 12.97 million barrels a day. However, these figures exclude Iraq’s production. The fall in March was the first drop since seven months.

Oil prices dropped for a short while below $100 in each of the past two weeks as equity prices became steady and the dollar’s decline against the euro slowed down. The dollar was close to its lowest level, at $1.5672 a euro, since April 1, at 11:03 a.m. in Singapore.

Commodity Broking’s Barrat further added that prices at these levels are unreasonable. He pointed out slowing western economies and risks to worldwide demand growth because of ever increasing inflation in China and India as reasons for oil being unable to sustain its current price levels.