Bullion banks and central banks struggle with explosive gold

By Patrick Brethour
Globe and Mail, Toronto

a href=http://www.globeandmail.com/servlet/story/RTGAM.20040112.wopec0112/BNSht...
tory/Business/

CALGARY -- OPEC is considering a move away from
using the U.S. dollar -- and to the euro -- to set its price
targets for crude oil, the highest-profile manifestation of
the debilitating effect of depreciation on the greenback's
standing as the currency of international commerce.

Several members of the Organization of Petroleum
Exporting Countries are seeking formal talks on using the
euro, as well as the U.S. dollar, when determining price
targets for crude, a senior oil minister within the cartel
said Monday.

quot;There are countries that are proposing this,quot; Venezuelan
Oil Minister Rafael Ramirez said in Caracas. quot;It's out there,
under discussion.quot;

Mr. Ramirez did not specify which OPEC members are
pushing the proposal, but much of the impetus is believed
to come from Persian Gulf producers.

They have seen their purchasing power in Europe pinched
as the U.S. dollar loses ground against the euro -- including
touching a record low Monday.

Any move to water down the use of the U.S. dollar as the
currency would have enormous symbolic impact, said one
prominent Canadian energy analyst.

quot;On a symbolic level, I think it's huge, not only for what it
says about the U.S. dollar, but also the implied change to
the nature of energy trading worldwide in the future,quot; said
Wilf Gobert, vice-chairman of Peters amp; Co. Ltd.

Beyond the blow to the greenback's prestige, a move by
OPEC to even partly price in euros would ensure that any
further depreciation in the U.S. dollar boosts oil prices,
Mr. Gobert said. And any country -- not just the United
States -- using the U.S. dollar for pricing would see the cost
of the commodity rise as that currency fell.

Indeed, while OPEC has yet to make any formal break with
the U.S. dollar, its refusal to boost output has already
offloaded much of the cost of the dollar's depreciation on to
the American economy. Mr. Gobert said oil prices at the end
of last month, about $32 (U.S.) a barrel, would have been
much lower if not for the decline in the value of the U.S.
dollar over the past 24 months. Using the exchange rates of
the dollar versus the euro two years ago, crude would be
selling for $22 a barrel instead, he said.

All of the oil prices used in OPEC's benchmark index, or
basket, are currently denominated in U.S. dollars.

The cartel uses that index as the basis of its price-band policy,
whose stated intent is to adjust output so the basket hovers
within a $22-to-$28 range.

Oil prices have lingered well above that maximum for 26
consecutive trading sessions, which in theory means that
OPEC should have increased its output by 500,000 barrels
a day to lower prices. But the cartel has ruled out doing so
before its regularly scheduled meeting on Feb. 10, arguing
that it is the depreciation of the U.S. currency -- not a lack
of supply -- that is fuelling the rally in crude prices. Monday,
crude for February delivery rose 41 cents to $34.72 a barrel
on the New York Mercantile Exchange, a 10-month high.

Mr. Gobert said he believes it is unlikely that OPEC will
opt for a formal split with the dollar, although the cartel may
very well accomplish the same effect by raising its price
band, he added.

But he said that OPEC's musings about adopting the euro
are part of the increased chatter about the rising value --
and influence -- of the 5-year-old currency among
commodity traders and analysts.

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