The Organization of Petroleum Exporting Countries (OPEC) is moving towards supporting $100 oil. Some of its members have already started to lobby aggressively to get the price to that level. There are a number of reasons why, but the most immediate one is the rapid decline in the value of the dollar which hurts the treasury receipts of cartel members.
"The U.S. currency's weakness means the 'real price' of oil is about $20 less than current levels," said Venezuelan Energy and Oil Minister Rafael Ramirez after yesterday's meeting of OPEC in Vienna, according to Bloomberg. Venezuela is a sworn enemy of the United States, so the comments may have been aimed, in part, at America, but the South American nation has much broader goals. Its socialized economy relies on the government's ability to provide capital to people and businesses within its borders. That is how President Hugo Chavez got elected. Oil receipts are critical to him retaining his position
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The other members of OPEC may not be quite so vocal, but the dollar continues to lose ground against other currencies, and depending on what actions the Federal Reserve takes to remedy a slow U.S. economy, the greenback could lose much more of its value.
What could become of the oil crisis shows how deeply and unfortunately trade, currency, and commodity issues are linked. The U.S. may be able to settle its trade differences with China, although that is not terribly likely. America may be able to stimulate its economy. The Treasury and Fed may be able to flood the market with dollars and put in place another round of monetary easing. Most of these actions would weaken the dollar and the currency could remain weak for months. If the past is any indication of what the future holds and if the U.S. economy remains moribund, then the dollar will likely drop. The dollar has fallen from $1.20 against the yen less than three years ago to its current level of 81 cents.