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Oil prices in Euros [UPDATED]

by DoDo Mon Oct 29th, 2007 at 02:49:43 PM EST

In the past few weeks, there has been a simultaneous Euro and oil price rally. So, the popular claim emerged that maybe the oil price rally is in reality just due to the falling dollar.

This has already been rejected by a number of bloggers who actually checked the numbers: crude prices increase faster. But, after it came up again in Jérôme's Meanwhile... story, I thought for future reference, I collect the actual data, and generate oil price in Euros diagrams. I show four below the fold.

Update [2007-10-29 14:49:43 by DoDo]: Now back to 1971 with Euro pegged to D-Mark, and a fifth diagram showing inflation-corrected diagrams.


The data I used:

The data is of course only for weekdays. For a steady progress of data (apart from from Friday to Monday jumps), for holidays on weekdays I copied the data for the prior workday.

So here is the diagram of the full dataset, i.e. from the beginning of 1971 until the end of last week. This contains the first and second Oil Shock, the seventies fall of the Dollar, the 1985 dollar high and oil low, the invasion of Kuweit shock and the early nineties ECU and DEM highs, and the Dubya Era. Before 1999, there are two lines: one where I pegged the Euro 1:1 to its nominal predecessor, the virtual currency ECU, and a second where I pegged it to its most important real predecessor, the German Mark, with the constant 1 = 1,95583DEM rate.

Below oil prices only during the lifetime of the Euro. This covers the Euro low in the summer of 2001, too. Price development in Euros is more moderate (we passed the August 2006 highs only with the October rally), but the trend is the same.

In Jérôme's latest story, I quoted an article where a journalist just stopped short of saying that analysts' predictions aren't better than tossing coins:

Bloomberg.com: Energy

OPEC crude-oil supply will probably increase 1.6 percent this month in advance of the group's pledge to raise supplies beginning in November, PetroLogistics Ltd., a Geneva consulting firm, said. Gasoline demand in the U.S. averaged 9.2 million barrels a day in the four weeks ended Oct. 19, down 0.2 percent from a year earlier, the Energy Department said Oct. 24.

Respondents have predicted price drops in the previous 15 weeks. Prices have declined in five of those weeks. The oil survey has correctly predicted the direction of prices 53 percent of the time since the survey's introduction.

Bloomberg's survey of oil analysts and traders, conducted each Thursday, asks for an assessment of whether crude oil futures are likely to rise, fall or remain neutral in the coming week. The results were:

RISE NEUTRAL FALL
18 4 21

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net .

So let's look at the 15 weeks ending with last week, first at the money values, then the percentage changes from the start of the period:

For more graphs of oil prices from 2006, in a greater variety of world currencies, check this Oil Drum story.

Update [2007-10-29 14:49:43 by DoDo]: I generated an inflation-corrected version of the diagram, using the following data:

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A question or two for the pros.

Before 1982, was oil price somehow fixed? If not, what was the WTI spot daily (or even intraday?) maximum during 1980 and early 1981 (Second Oil Shock)?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Fri Oct 26th, 2007 at 02:24:49 PM EST
The NYMEX WTI contract launched in 1983.

Prior to that, I don't think there was much transparency in the US (or any other) market.

NYMEX Oil History

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Oct 26th, 2007 at 02:59:27 PM EST
[ Parent ]
I read in Yergin's "Energy Future" that the domestic price of oil was controlled in the US until the first oil shock. Market was cleared at a constant price by using the Texas fields as swing producer (the Texas railroad committee, a government body, set monthly production to regulate inventories). Such silly schemes are no different to the subsidies in effect in oil producing nations like Iran.

Of course, when Texas peaked and could no longer meet the set targets, the US had to import at world clearing price. This was painless in the beginning, as it was not far from domestic price, and very low volatility (from the earlier period when the US was the N°1 producer of oil and a major, though declining, exporter).

When the embargo was enacted, the domestic set price made US oilcos unable to bid for very long internationally (they would buy abroad for more than refineries would pay, by law) and that was the real reason for the gas queues and shortages (the price at the pump did not budge at first, the oilcos just stopped selling it a loss).

It quickly became obvious that the price control was a suicide scheme and it was lifted in the midst of the oil shock (and fluctuating pump price was the next shock to americans).

Pierre

by Pierre on Sat Oct 27th, 2007 at 05:53:42 PM EST
[ Parent ]
... when the US hit peak oil ... indeed, the official notice that all quota restrictions on Texas production were lifted could be seen as the "official notice" of US peak oil.

But, in the broader sense, yes, it was the loss of price making power in the US by US swing producers that eliminated the system for stabilizing oil prices, and opened the way for Saudi Arabia to emerge as the most important swing producer.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Oct 29th, 2007 at 02:32:36 PM EST
[ Parent ]
The data is comaptible with an stabilization of the price in euros after a raise in 2004...

2004 was the year we had full confirmation that some non-OPEC coutnires had already peakes and the declining rates of production in thsoe countries were known...

After that .. it seems to me that the price is rahter stable.. I bet that it  can not be rejected as a null hypothesis.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Oct 26th, 2007 at 04:38:31 PM EST
We are more than 60% above the 2004 peak (incidentally, exactly three years ago) in dollar terms, and more than 40% in Euro terms. Stability as null hypothesis could be better argued from the summer of 2005 on, but we'll see where we head next year. (I'd agree that the last three weeks' rise has less to do with tight supply and more with war fears.)

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Oct 26th, 2007 at 05:02:05 PM EST
[ Parent ]
I think you can not reject given the oscillation from 2004 onwards. while you woudl be able to reject this hypothesis witht he dolalr given the ocntinuous increase..t eh oscialtion in price in euros put the price today as standard...  We would need ac ontinaution of the trend in the last two weeks in the next year to start deivating significatively fromt he sigma......

I personally think that we will see the price in euros stabilized if there is no war....or at the most have  slow increase... while the dollar can reach easili the 1.6 mark.. so 130$ per barrel will be rather stable in euros.. that's an opinion... but of course I do not know...

aApleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Fri Oct 26th, 2007 at 05:21:19 PM EST
[ Parent ]
I noticed that I still had "futures" in the diagram titles - diagrams now replaced with corrected titles.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Fri Oct 26th, 2007 at 04:47:59 PM EST
Bonus graph: exchange rate history.



*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sat Oct 27th, 2007 at 03:29:06 AM EST
[ Parent ]
So which of the two did you use for the above graphs? And which one should be used? After all, the euro is more the successor of the DM than of the ECU...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Oct 28th, 2007 at 08:48:01 AM EST
[ Parent ]
I used the ECU, as stated below the fold. For an economic area comparison, I'd consider it more an origin of the Euro than the DM.

But I will generate €(DEM) oil price graphs too, as well as the trends since 2004 for kcurie, after I finished the diary I am now writing.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sun Oct 28th, 2007 at 09:08:39 AM EST
[ Parent ]
The one benefit of using the DEM is that I will be able to generate CPI-corrected diagrams, too.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sun Oct 28th, 2007 at 09:11:11 AM EST
[ Parent ]
Now done. It's interesting how stable inflation-corrected oil prices were for est Germany in the first half of the eighties, in the €60-80 band most of the time. We're still a long way from exceeding those peaks.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Oct 29th, 2007 at 02:56:52 PM EST
[ Parent ]
I now replaced the 1978-2007 diagram with an 1971-2007 diagram that has both the values with ECU pegging and those with DEM pegging. I will do the inflation-corrected graphs (only those deflated with CPI, unless you have a good set of data for both DEM and $ for better deflators) later today.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Oct 29th, 2007 at 04:39:33 AM EST
[ Parent ]


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