Recent declines in the US Dollar Index this year have led some OPEC member countries to call for oil prices to rise to $100 a barrel.
Are Oil Prices Undervalued?
The US dollar weakness means the real price of oil is about $20 less than current levels, Venezuelan Energy and Oil Minister Rafael Ramirez said after yesterday’s meeting of the OPEC member countries in Vienna.
“OPEC is not interested in compliance right now,” Nordine Ait-Laoussine, the former Algerian oil minister who now runs Geneva-based consultant Nalcosa SA, said in an interview in Vienna. “They’re concerned about the dollar because as the dollar weakens, prices go up. They’re not paying any attention to production discipline.”
ICE Dollar Index at 2010 Lows
The ICE Dollar Index, which tracks the currency against those of six US trading partners, was at 76.52 at 7.16 GMT this morning, its lowest level since December 2009, bringing its decline in the past month to over six percent.
OPEC is exceeding its own quotas as prices rise above the $70-to-$80-a-barrel band that Saudi Oil Minister Ali al-Naimi said is “ideal.” The IEA estimated that the group achieved 54 percent of its promised supply cuts in September.
We Would Love to see $100 a Barrel
Shokri Ghanem, chairman of Libya’s National Oil, said a higher oil price would help OPEC offset the loss of revenue from the weaker US dollar.
“We would love to see $100 a barrel. We’re losing real income. Libya in particular would like to see a higher oil price.” Ghanem said yesterday in Vienna.
Meanwhile, Kuwaiti Oil Minister Sheikh Ahmad al-Abdullah al-Sabah said in an interview this week that $70 to $85 is the “most comfortable” range, while his Algerian counterpart, Youcef Yousfi, said between $90 and $100 is “reasonable.”
“So far, the perfect price has been $60 to $80, and now they’re talking about $80 and $100. This all tells me OPEC is quite happy with higher oil prices and quite unhappy with the fall in the US dollar.” said Sean Brodrick, at Weiss Research in Jupiter, Florida.