Oil prices reach post-crisis high in UK, euro zone
Only slightly higher in dollar terms, oil prices are surging for weaker currencies like the British pound and euro.
Since October last year, the U.S. dollar price of oil has been moving within a trading range of roughly $70 to $80, though it has briefly risen slightly above that range. After the markets interpreted the employment report in a bullish way, it is again trading at somewhat above $80, $81.90 to be more precise when this is written.
However, it should be noted that while the price of oil is only slightly above previous post-crisis highs in U.S. dollar terms, it is in fact significantly above previous highs in terms of weaker currencies such as the euro and the pound. Compared to the November high of $80.38, oil is up only about 2% in U.S. dollar terms. But at that time the euro was trading at roughly $1.50 and the pound at roughly $1.67, meaning that in terms of those currencies oil was trading at roughly €53 per barrel and £48 per barrel respectively. Now with the euro down to about $1.35 and the pound down to $1.50, this means that the oil price in those currencies are up to about €60 per barrel and £54 per barrel respectively, an increase of more than 10%.
This is important to remember as even many people in Britain and the euro area irrationally tends to think of the oil price in terms of the U.S. dollar price, deluding them to think that oil has become only slightly more expensive for them since November.
Stefan is an economist currently working in Sweden.
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