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View Full Version : Petroleum prices in euro : not that big an increase



Maciamo
29-02-08, 11:23
Inflation is at its worst in over 10 years in Europe. Producers and retailers claim that the price of petroleum is the main cause for this.

Indeed, when we hear of the steep rise of oil prices from about 52 USD/barrel in early 2007 to over 100 USD/barrel now (see graph (http://en.wikipedia.org/wiki/Image:Oil_Prices_Medium_Term.png)), it feels like it has doubled. For Americans, it has doubled, but not for Europeans.

Most people forget that the US$ has fallen to its lowest level in the same period, and as oil barrel prices are always quoted in dollar, the effect is more dramatic. The truth is that the Brent Crude Oil prices in euro (see graph (http://www.swivel.com/graphs/show/24422650)) has only risen from 41 euro in early 2007 to 67 euro now. Instead of a 100% increase, it is closer to 50%.

This gap is even more obvious if we go back to early 2001, when a barrel cost about 28 dollars, against 38 euro, because the dollar was stronger than the euro at the time. Compared with early 2008, 7 years later, oil prices in USD have skyrocketed by almost 400%, while those in euro have not even reached a 100% increase.

Consequently, inflation of products directly related to petroleum should be about 400% in the USA, but 4x lower in Europe. This is not the case. Inflation has not been tremendously different between the two countries, because companies on the European market have seized the opportunity of the confusion to increase their prices and profit margins. First they claimed that inflation was caused by the adoption of the euro, then to the stupendous rise of oil prices. In fact, neither can be accounted for the actual inflation that Europe has experienced, which is often higher (depending on the product) than what the USA experienced during the same period.