Saturday, April 24, 2010

Oil Price in Euros: Yet Another Economic Challenge for Europe


Here I used a pair of ETFs: the oil ETF USO and the euro ETF FXE to estimate the movement in the price of oil denominated in euros.

Because of the weakness in the euro and the firmness of oil prices, we see that oil has moved up about 50% since the bear lows in March of 2009. With the recent drop in the euro and rise in oil prices, we see that the price of oil in euros has been moving steadily higher thus far in 2010.

With many European economies being energy importers, not producers, such a rise in oil prices can only provide headwinds to economic growth in the eurozone.
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4 comments:

Jorge said...

Dr. Steenbarger,

While higher oil prices are obviously not positive for any non oil-producing economies, keep in mind the following:

a) Much lower oil (particularly gasoline) consumption than in America (more compact cities, stricter car standards, extensive high-speed rail).

b) Most European countries are oil importers, not energy importers (France has 80% nuclear power, renewable energies are a significant part of energy production in Spain, Germany, Denmark, etc.).

c) The recent increase in oil prices is offset largely by the dirt-cheap prices in natural gas (Heating oil use is marginal).

d) A lower euro is good for exporters; when combined with overall higher oil prices is excellent for both producers and exporters of wind turbines, solar panels, etc.

Some people will balk at the pump, but barring €200 oil prices, we (unfortunately) have bigger fish to fry.

Best trading,


Jorge

PS: I already congratulated you on your next venture, but I forgot to congratulate the hedge fund that hired you! :)

Curtis said...

Dr. Brett thanks for these pair ideas.

Jorge not so sure it is a hedge fund. I have absolutely no factual or pertinent knowledge as to who hired him. But being the great predictor, I can predict many things. First he wrote about moving. I suspect he is moving to New York..

He referred to it as a trading firm and not a hedge fund. I suspect from this it is a proprietary fund. Given it is a "challenge" in the right environment, I would look to former clients. I know he did some work for some firms in the past for free and without charge.

So, I am predicting it is a prop firm in NY that he has worked with in the past. This firm has a lot of new prop traders and offers training. This would give him a lot of coaching opportunity on a day-to-day basis.

I could be absolutely wrong but I feel this is a good prediction. Many other possibilities too. I grant that I could well be wrong.

Brett Steenbarger, Ph.D. said...

Hi Curtis,

You make an excellent prediction, given my background in coaching and trading.

But, sorry, you're not correct.

Brett

Curtis said...

Good throwing me for a loop Dr. Brett! There are lot of hedge funds in Connecticut I've read. I'll guess on Texas and a prop firm that is located there. I'm led to believe it is at least in the US. So there aren't that many places. I pick Texas. This is my final offer.