Because the crude oil market is not perfectly competitive, the choice of currency is relevant for real oil prices in different markets. The euro has taken the brunt of the dollar depreciation, so that oil prices in recent years have been more stable in euros than in dollars. Stability makes the euro a more attractive currency for storing value, also for oil exporters. Therefore, the euro should replace the dollar as the as the unit of account, the standard of value in contracts and the medium of exchange; in brief, oil should be priced and traded in euros. The counter-argument is that international oil trading is based on the dollar, not only for crude oil, but also for refined products that ultimately are sold in local currencies; this provides a transparent and efficient oil market. The present dollar oil trading imposes a currency risk and ensuing costs on non-US agents in the market are often seen as unreasonable. Further depreciation would most likely undermine the position of the dollar in oil trading. Copyright 2008 The Author. Journal compilation 2008 Organization of the Petroleum Exporting Countries.
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Article provided by Organization of the Petroleum Exporting Countries in its journal OPEC Energy Review.