Bank of America Merrill Lynch’s commodities analysts have picked up that Brent crude — when priced in euros — is uncomfortably close to its July 2008 peak.
And they’ve added some interesting points:
Germany is paying for Europe’s oil bill at present
On our estimates, energy as a share of European GDP is already near levels witnessed in 2008, suggesting there is limited room for oil prices in EUR to keep appreciating in the short-run. Moreover, continued sovereign credit downgrades may limit the ability of certain countries to keep financing their trade deficit. For now Germany’s large manufactured goods export surplus has financed the rest of the Eurozone’s oil deficit. Still, the potential for an Iranian oil supply disruption is a major risk for troubled sovereigns such as Greece, Italy, and Spain, all major importers of Iranian oil, as it would curtail their physical oil sources and further deepen their large current account deficits. In short, higher oil prices in EUR coupled with a EU embargo on Iranian oil could deepen Europe’s recession and hit oil demand hard.
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Looking back 10 years, we find that Germany’s cumulative current account surplus adds up to roughly $1,900bn, while the combined cumulative deficit of Italy, France, Spain, Greece and Portugal equates to $1,500bn (Chart 6). Most interestingly, our analysis suggests that oil has moved from 67% of the combined deficit of these countries in the 2000-2010 period to being close to 80%, suggesting that Germany’s export surplus is effectively financing the rest of the Eurozone’s oil deficit (Chart 7). This means that, at a combined current account of $258bn in 2011 for these five nations (and with around 80% of that being oil net imports), a 10% increase in oil prices would increase the current account deficit by around $21bn.
It was reported back in November that Greek refiners have specific problems obtaining credit to buy oil anywhere but from Iran. Plus, as BofAML points out, Iranian crude accounts for more than 10 per cent of both Spain’s and Italy’s oil imports. Hence it’s not so surprising to see the European Union deferring its Iran import embargo to six months’ time.
Not just the eurozone though… Brent priced in sterling is also close to its 2008 record. The UK’s current account deficit to GDP in 2011′s third quarter was, of course, at its widest since 1990.
Related link:
Chris Cook: Naked Oil - Naked Capitalism