Thursday, February 23, 2012

Euro Oil Shock?

From the Financial Times:

Oil prices soared to a record high in euro terms, surpassing the peak touched in the 2008 price spike and posing a fresh problem for eurozone economies already struggling under the weight of the region’s debt crisis.

The euro-denominated price of Brent crude, the global benchmark North Sea crude, rose to a peak of €93.63 a barrel on Thursday, surpassing the previous high hit on July 3, 2008. The new euro record comes just a day after Brent hit a record in sterling terms.
The rally in the price of crude denominated in the two major European currencies is likely to push up the imported cost of oil. It may undermine growth as well as demand for refined oil products, analysts said.

“This is a regional oil shock,” said Amrita Sen, commodities analyst at Barclays Capital in London.

This raises a few interesting points.

1.) The EU region has a far different relationship with oil than the US.  Taxes are already high, meaning use is way down.  Public transit is the norm.  So, how much of a shock can this already have?  The answer -- like all economic answers -- is it depends.  My thoughts are with an economy already teetering between expansion and contraction, this will be a problem.

2.) Can the US de-couple from an EU slowdown?  That's a good question.  Usually, the answer is no; economies are far too integrated to prevent a bleeding through of problems. 

An EU slowdown is one of the biggest risks to the US economy right now.