Iranian President Ahmadinejad came out Sunday at the end of a rare OPEC summit stating that OPEC’s members have expressed interest in converting their cash reserves into a currency other than the depreciating U.S. dollar, which he called a “worthless piece of paper.” (It later became clear that the “members” he is referring to is none other than Iran and Venezuela… go figure.)

He went on to blame President Bush’s policies for the decline of the dollar and its negative effect on other countries.

In an effort to tag-team the idea, Venezuelan President Hugo Chavez jumped in from the sidelines saying “the empire of the dollar has to end.”

Chavez sees the Euro as a better option to hold in reserve, and further went on to affirm his position stating that the U.S. dollar has been in a free-fall without a parachute.

While it’s easy to see that the the Chavez-Ahmadinejad duo are taking any opportunity to take shots at the U.S. while on an international podium, I have to wonder if the declining dollar could force OPEC’s hand to switch to another currency.

The question then becomes, what effect does that have on the U.S. economy?

Economics, Energy, Oil & Gas, Politics Ahmadinejad, Chavez, Currency, dollar, oil and gas, OPEC, petroleum

Yesterday crude oil settled in above $93 per barrel on production problems in Mexico and a weaker dollar.
Pemex, of Mexico, took 600,000 barrels a day off line due to weather. Most of the problem stems from ports being closed, as they are unable to export any more crude and have run out of storage.

The lost production will likely be made up quickly, but it will certainly draw on U.S. inventory levels in the coming weeks, which should further support prices. Crude is up 10% since Wednesday, when the DOE said in its weekly inventory report that stockpiles fell, contrary to analysts’ expectations for a build.

On Wednesday, the Fed may announce a rate cut by a quarter percentage point, which would be negative for the dollar and is seen as positive for crude oil demand. A bigger-than-expected cut would send prices soaring higher, while no cut at all would likely cause a sell-off.

Evidently it is widely accepted that the Fed will cut rates by a quarter point, which I think is ridiculous at this juncture. I don’t see an additional rate reduction helping the current housing market, and it certainly won’t create more jobs overnight.

I’d love to see the Fed hold the rate at 4.75% and wait until we see how the last reduction has affected consumer spending before chopping the rate further.

Economics, Finance, Oil & Gas crude oil, dollar, Fed rate cut, interest rates, rates