Oil price threatens European economic recovery

Change to the correlation between the euro/dollar rate and the price of oil threatens European economic recovery, according to analysis from DNB Markets.

The price of oil has remained in a band of roughly $100-$120 for the past year, still well below the all-time high of $149 seen in 2008. However, in euro terms the price is much closer to the record – about €89 per barrel today against €93 in 2008 – largely as a result of the weakness in the single currency.

The breakdown in the correlation betweeen the euro/dollar rate and the price of oil poses a threat to European growth according to oil analyst Torbjørn Kjus at DNB Markets in Oslo.

Not only is the price of oil rising for Europeans at a faster rate than other regions, such as North America, but what also needs to be understood is that Europe overall remains the second biggest user of oil, Kjus told Dagens Næringsliv. On an individual country basis the US remains top, and China second.

If European growth is knocked back by a faster rise in the price of oil, then this in turn could hit global growth.





The main reason the record euro price of oil has not hit European economies significantly thus far is the much higher rate of tax applied. For example, in countries such as the US and China, a 10%-20% rise in the price of the commodity is passed through directly to the price paid at the pump by car drivers. In Europe such an increase is mitigated by the fact much of the price paid at the pump consists of tax rather than the cost of the oil.

Seperately, it has been reported that Japan is looking to stop imports of oil from Iran as part of its backing for US moves to isolate the Middle Eastern country over its atomic energy programme, amid allegations that this is being used as a cover for a nuclear weapons programme. Both West Texas Intermediat and Brent Crude were up on the day.


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