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World Economy

28

OPEC Monthly Oil Market Report – August 2017

Oil prices, US dollar and inflation

The

US dollar

generally declined in July against major currencies but was mixed against emerging market

counterparts. The weakness of the US dollar has mainly reflected market expectation that a more gradual

pace of monetary policy normalization would be required by the US Fed in view of the slow progress of the

economic reform agenda in the US Congress as well as a weakening trend of inflation readings since

February. On average, the US dollar dropped by 2.5% m-o-m against the euro – it has dropped by 8.5%

compared to last December – and also weakened by the expectation of a sooner start of the monetary policy

normalization in the Euro-zone. On average, the US dollar lost 0.8% against the Swiss franc. The dollar also

lost 1.5% m-o-m against the British pound sterling partly due to the overall weakness of the US dollar, but

also in anticipation of some monetary tightening by the Bank of England (BoE) in view of higher inflation.

However, the BoE left rates unchanged at its August meeting, and the US dollar revered some of the July

losses in response. Against its Canadian counterpart the US dollar lost 4.6% as the Bank of Canada

increased interest rates for the first time in seven years. Against the Japanese yen the US dollar rose by

1.3% m-o-m but the majority of the gains was given back in the second half of the month.

On average, the US dollar declined by 0.5% against Chinese yuan in July. It was relatively flat against m-o-m

against the Indian rupee for the second consecutive month. The dollar declined by 2.7% m-o-m against the

Brazilian real reversing the gains of the previous month as the current government was ensured in the short

run after a vote in the country’s congress. Against the Russian rubble it increased m-o-m by 3.2% partly due

to the potential impact of a new sanctions package approved by the US against Russia. Against the Mexican

peso the US dollar declined by 1.9%, and its down by 13% since last December.

In

nominal terms

, the price of the

OPEC Reference Basket (ORB)

increased by $1.72, or 3.8%, from

$45.21/b in June to $46.93/b in July. In

real terms

, after accounting for inflation and currency fluctuations,

the ORB increased to $31.23/b in July from $30.44/b in June (base June 2001=100). Over the same period,

the US dollar declined by 1.3% against the import-weighted modified Geneva I + US dollar basket*, while

inflation declined 0.1%.

Graph 3 - 30: Impact of inflation and currency fluctuations on the spot OPEC Reference Basket price

*

*

The ‘modified Geneva I+US$ basket’ includes the euro, the Japanese yen, the US dollar, the pound sterling and the

Swiss franc, weighted according to the merchandise imports of OPEC Member Countries from the countries in the

Basket.

0

20

40

60

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100

120

Jul 13

Sep 13

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May 14

Jul 14

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Nov 14

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Mar 16

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Jul 16

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Jan 17

Mar 17

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Jul 17

US$/b

Nominal Reference Basket price

Real Reference Basket price

Source: OPEC Secretariat.

Base: June 2001 = 100

$46.93/b

$31.23/b