Saturday, July 21, 2012

Rising oil prices combined with weak euro will add to Eurozone's woes

The euro's 6% decline year-to-date and 10% decline from the 2012 high will benefit German exporters, allowing them to undercut their Asian and US competitors on price. But the weak euro will also push the Eurozone periphery deeper into recession by increasing fuel costs. Italy's recession for example has already been exacerbated by high (and rising) taxes on gasoline. The hope was that the recent declines in Brent will help ease the pain. But as crude oil began to rise and the euro continues its decline, troubles of high fuel prices are plaguing the Europeans once again. The chart below shows Brent futures price denominated in euros.

Brent crude oil denominated in euros

This concern is not limited to the Eurozone of course. The UK is feeling the pain as well, and as usual blaming the evil "speculators" for the jump in gasoline prices. But it is the Eurozone periphery that is most vulnerable to these increases due to the region's already drastically weakened economies.
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