With Oil Prices Rising, Colombian Peso Strengthens to Three-Month High

Just as the New Year begins, so comes a new three-month high for the value of the Colombian peso. With oil prices jumping on supply disruptions in Iran and Europe, the currency today reached 2,902 pesos to the dollar.

This was the strongest that the peso has been since September 20, when it hit 2,892 pesos to the dollar. But even that autumn level was a short blip, fleeting soon after and representing a value not seen since the similar rate of 2,891 pesos to the dollar that had been seen on June 4.

The strongest rate for the Colombian peso in all of 2017 was 2,841 pesos to the dollar on April 18.

While policymakers in Bogotá may hail today’s rate for the peso, the optimism should probably remain tempered. The Colombian peso has remained highly correlated to the price of crude in recent years, and the current uptick in oil prices may be temporary.

The significant U.K. North Sea Forties pipeline has gone back online after a shutdown that began on December 11, and operator Ineos says the key distribution channel will be back to full capacity in early January. U.S. production has also become more agile in recent years, responding swiftly to crude price increases, so North American producers may be taking this opportunity to increase output.

So while ongoing protests and risk in Iran could continue to curtail a global production level that remains deflated by voluntary OPEC cuts, many analysts believe levels will stabilize and that oil prices, after hitting a two-and-a-half-year high this week, may not have much upside left.