Tags: Weak Dollar | Putin | Oil | Prices

Weak Dollar Cheers Putin by Helping to Keep Oil Prices Down

Weak Dollar Cheers Putin by Helping to Keep Oil Prices Down
(iStock Photo)

By    |   Wednesday, 19 August 2015 07:27 AM

Oil producers usually pay their expenses in local currencies. This boosts profits when the dollar is strong since they sell oil in dollars. That means cheap oil isn’t really hurting non-OPEC countries.

In fact, Russia is generating just as much profit now, with oil near $40, as they were when oil was near $100 and the ruble was stronger. This required just a 27 percent increase in production.

In addition to benefiting Russia, a recent analysis by Bloomberg showed that declines in local currencies due to a strong dollar increase the profits of Canadian drillers, Australian miners and commodity producers in other countries.

Federal Reserve officials planning to raise interest rates could help commodity producers generate even more profits. Higher interest rates should make the dollar more attractive than other currencies.

Russia should continue to benefit from a weak ruble. Along with increased sales to Iran from the recent nuclear deal, Russia’s economy could surprise to the up side.

As long as local currency costs continue to drop, non-OPEC countries can remain profitable by producing more oil. OPEC country currencies tend to be highly correlated with the dollar and they are not benefitting as much from dollar strength.

High production levels will keep the pressure on oil prices. Because some large producers are still profitable in this environment, a recovery in oil could be months, or even a few years, away.

http://www.bloomberg.com/news/articles/2015-08-17/oil-bull-agony-prolonged-as-commodity-currency-drop-extends-glut


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MichaelCarr
Oil producers usually pay their expenses in local currencies. This boosts profits when the dollar is strong since they sell oil in dollars. That means cheap oil isn’t really hurting non-OPEC countries.
Weak Dollar, Putin, Oil, Prices
232
2015-27-19
Wednesday, 19 August 2015 07:27 AM
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