Will oil make the magic number this Wednesday? Crude prices rose higher in Asian trade, setting new all-time records and edging closer to the $100 a barrel mark.
The important Wednesday factor is the jitters ahead of the release of US inventories data – due at 15.30 GMT. The latest spike comes despite expectations that crude stockpiles will have risen by a modest 800,000 barrels, according to a poll by Dow Jones, or 600,000 barrels, according to Reuters.
Nymex January West Texas Intermediate crude oil hit an all-time record of $99.29 a barrel in Asian trading, extending its Tuesday surge of $3.39 which took the price to a $98.03 a barrel close, the highest since the contract started to trade in 1983.
The price surge was helped by news that Shell had halted production at one oils sands unit in Scotford, Canada, and the wait to see if Opec agrees an output hike at its next ministerial meeting in December – a matter not discussed at its summit in Riyadh last week.
The dollar fell Tuesday to a record low against the euro of $1.4853 and kept close to that level on Wednesday after the Federal Reserve cut its forecast of the potential growth of the US economy to 2.5 per cent.
But as far as the sabre-rattling by the Opec ministers on the weak dollar goes, noted an FT leader, there are two things they could do – one meaningless and the other highly significant.
World markets price oil in dollars – which would still be true if all Opec’s production moved to euros or a price based on a currency basket. A change might hit confidence in the US currency, or embarrass or undermine the US somewhat, but should have no other effect on the oil price. The only way to change that would be for Opec to go back to a policy it abandoned in the 1980s, and set a price for its own oil separate from the dollar-denominated benchmarks such a WTI and Brent.
The more serious policy choice, says the FT, is whether individual Opec members abandon or revalue their currency pegs to the dollar, rather than importing rate cuts and the ensuing inflation from the US.
Currency revaluation is a cheaper and easier way to adjust to the higher oil price than inflation. In the long run everyone will benefit if oil exporters revalue against the dollar, but given the pressure the US currency is under, now is the worst possible time. If possible, the oil states should act gradually.