[SunkenCiv]

OPEC Has Already Turned to the Euro
GoldMoney Alert
February 18, 2004

...The source for the euro exchange rate is the Federal Reserve, and I have calculated the euro's average exchange rate to the dollar for each year based on daily data.

US Imports of Crude oil
(1)	(2)	(3)	(4)	(5)	(6)
Year	Quantity (thousands of barrels)	Value (thousands of US dollars)	Unit price (US dollars)	Average daily US$ per € exchange rate	Unit price (euros)
2001	3,471,066	74,292,894	21.40	0.8952	23.91
2002	3,418,021	77,283,329	22.61	0.9454	23.92
2003	3,673,596	99,094,675	26.97	1.1321	23.82

We can see from column (4) in the above table that in 2001, each barrel of imported crude oil cost $21.40 on average for that year. But by 2003 the average price of a barrel of crude oil had risen 26.0% to $26.97 per barrel. However, the important point is shown in column (6). Note that the price of crude oil in terms of euros is essentially unchanged throughout this 3-year period.

As the dollar has fallen, the dollar price of crude oil has risen. But the euro price of crude oil remains essentially unchanged throughout this 3-year period. It does not seem logical that this result is pure coincidence. It is more likely the result of purposeful design, namely, that OPEC is mindful of the dollar's decline and increases the dollar price of its crude oil by an amount that offsets the loss in purchasing power OPEC's members would otherwise incur. In short, OPEC is protecting its purchasing power as the dollar declines.

[Zhang Fei]

[OPEC Has Already Turned to the Euro]

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OPEC simply looks at what it can buy for a barrel of oil, and sets price targets in dollars based on what it needs to buy. The reason it prices oil in dollars is because the dollar is the most liquid single currency, which is another way of saying that moving in and out of the currency incurs the smallest transaction costs. The idea that pricing oil in dollars means Americans can buy it cheaper is BS*.

* Technically, buying oil in dollars vs euros is slightly cheaper because we don’t have to do a currency conversion - which costs an infinitesimal amount. A recent exchange rate for large amounts was 1 euro for 1.1182 dollars if we’re buying euros, and 1.1181 dollars for 1 euro if we’re selling euros. But the % difference/transaction fee is tiny - (1.1182-1.1181)/1.1182 x 100 = .009%. On $3 a gallon gasoline, the difference is literally .027 cents per gallon.

The mechanics of an oil purchase, if oil were priced in euros? We pay currency traders their foreign exchange fee of .009% of a transaction to buy euros in exchange for the dollars we possess. We pay OPEC in the euros we just bought. We take delivery of the oil we purchased from OPEC.