Oil prices rose Monday with more talk among OPEC members about converting their cash reserves to the euro and away from the U.S. dollar.
There is also doubt a possible OPEC output hike next month would get more supplies to market in time for the northern winter.
Fresh purchases of the new Nymex expiry — the December contract expired Friday — were also behind some of the gains.
Light, sweet crude for January delivery rose 81 cents to $94.65 (U.S.) a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe. The contract rose $1.77 to settle at $93.84 a barrel on Friday.
In London, January Brent crude futures added 53 cents to $92.15 a barrel on the ICE Futures exchange.
New comments about the dollar arose during a weekend summit, where the heads of state of the Organization of Petroleum Exporting Countries sought to find ways to mitigate the adverse impact the battered U.S. currency has had on revenues.
Oil is priced in U.S. dollars and the currency's depreciation has contributed to rising crude prices and eroded the value of dollar reserves. Cartel officials have resisted pressure to increase oil production to ease prices.
“The fact that the OPEC members are talking about issues like the weak U.S. dollar and not talking about raising output is supportive of strong pricing and so we're seeing signs of the market gaining strength,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore.
Iranian President Mahmoud Ahmadinejad, in Riyadh, Saudi Arabia, called the dollar a “worthless piece of paper,” and said the cartel's members have expressed interest in converting cash reserves into a currency other than the U.S. dollar — a sentiment echoed by Venezuelan President Hugo Chavez, who called the euro a better option.
There had been speculation over whether OPEC would raise production at the meeting following recent oil price increases that have closed in on $100 a barrel. U.S. Energy Secretary Samuel Bodman had called on OPEC to raise output last week, but cartel officials say they will hold off any decision until the group meets next month in Abu Dhabi in the United Arab Emirates.
Some analysts say a decision to increase output next month is unlikely to strengthen supplies to meet peak winter demand season.
“Even if the OPEC ministers decide to raise output in early December, that would likely become effective only in January so by the time the oil gets to the market, the winter season would essentially be over,” Mr. Shum said.
OPEC officials have also cast doubt on the effect any output hike would have on oil prices, saying the recent rise has been driven by the falling dollar and financial speculation by investment funds, rather than any supply shortage.
In other Nymex trading, heating oil futures gained 1.79 cents to $2.6050 a gallon while gasoline futures added 1.56 cents to $2.3910 a gallon.
Natural gas futures jumped 7.2 cents to $8.073 per 1,000 cubic feet.
OTTAWA — China's growing inflation problem may represent one of the best hopes that Canadian manufacturers and other exporters have for some relief from a sky-high loonie.
While the Bank of Canada grapples with inflationary pressures that could preclude a significant cut in interest rates – which would take pressure off the dollar – China may be forced to increase the value of its currency to combat inflation.
At a meeting in South Africa this weekend, finance ministers and central bankers from 20 leading nations expressed concern about a slowdown in global economic growth even as food and energy prices rise sharply around the world.
The financial leaders warned that turbulence in currency and financial markets will continue over the medium term as the global economy copes with near-record oil prices, rapid Asian growth and a slowdown in the United States, and a global credit crunch sparked by the crisis in the U.S. subprime mortgage market.
As he has in the past, Finance Minister Jim Flaherty urged China to boost the value of the yuan, arguing that Canada has borne an undue proportion of the burden from a skidding U.S. dollar while China's fixed-rate currency has sheltered its export-oriented economy.
Other finance ministers echoed his call – as did the managing director of the International Monetary Fund, though not as bluntly aimed at China. But while China is unlikely to respond to external pressure, it has pressing domestic reasons to boost the value of its currency.
In a weekend conference call from the resort Kleinmond, Bank of Canada Governor David Dodge said the Chinese central bank governor noted the Asian giant is experiencing an uncomfortable rate of increase in consumer prices.
China has tried without much success to slow the growth rate of its red-hot economy, and may have to resort to currency appreciation to slow down its export growth and take pressure off imported energy and food prices.
“It's very much in their interest [to increase the value of the yuan] because inflation is a huge political as well as economic problem for them,” Mr. Dodge said. “It's very much in their interest to follow policies to deal with their own domestic issue, and that at the moment is inflation.”
Don Drummond, chief economist for the Toronto-Dominion Bank, said consumer prices are rising at a 6-per-cent clip in China, while its U.S. dollar reserves are growing to worrisome levels.
So while China is unlikely to respond to hectoring from countries such as Canada, it may act on its own. Such a move would take pressure off a handful of free-floating currencies, including those of commodity-based economies such as Canada, Australia, South Africa and Brazil.
The G20 finance leaders warned that the twin currency and financial volatility is not likely to calm down soon, and will likely result in slower global growth.
Mr. Dodge said the Bank of Canada would respond to those factors, which are more worrisome than they were even a month ago. Many economists expect the central bank to begin cutting rates to reflect the higher value of the loonie and the slower growth expected in the United States, Canada's largest export market.
Last week, Merrill Lynch Canada Inc., J.P. Morgan Securities Canada Inc., and the Royal Bank of Canada forecast the central bank would cut its trendsetting rate next month, but CIBC World Markets and TD Bank were more circumspect.
TD's Mr. Drummond said the Canadian economy has been growing at an unsustainable rate and Mr. Dodge had been poised to raise rates before the credit crunch escalated in the United States this fall and the loonie shot well above $1 (U.S.).
Despite the credit and housing market problems, even the U.S. economy is expected to maintain 2-per-cent growth next year, after a fairly robust 2007. Fuelled by stronger exports – reflecting a sharply devalued dollar – the U.S. economy grew at a 3.9-per-cent clip in the third quarter.
Unless the Canadian dollar climbs back toward its high-water mark of $1.10 or the American economy does a swan-dive, the Bank of Canada is likely to stand pat on interest rates, Mr. Drummond said.
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