Sunday 25 March 2012

In Which Currency is Crude Oil Presently Cheapest?

The Crude Oil Price Peeked in 2008 but how Expensive is it now in World Currencies

Just recently there has been a lot of talk about the price, plus the increasing price of petrol and diesel (which our US brethren refer to as "gas").  So I thought that I’ll look at the crude oil price over the last couple of years.  There are many benchmarks for the crude oil price, such as the West Texas Intermediate (WTI) and Dubai Crude, but I’m going to use the Brent Crude spot price.  The nominal Brent Crude oil price peaked on 3rd July 2008 at $143.95 (US Dollars) per barrel, before rapidly falling during the “credit crunch“ after the collapse of the US Investment bank Lehman Brothers Holdings IncThe nominal Brent Crude price bottomed on 26th December 2008 at $33.73 per barrel.  Since that time the prices have increased and by the 1st March 2012 the price was $125.76 per barrel, which is 87% of the peak price on 3rd July 2008.  However unless you live in the US, buy all your goods and get paid in US Dollars, the Dollar price of crude oil doesn’t mean much as your reference will be another currency.  So I’ve converted the crude oil price since 2008 to determine the price in several world currencies.  The Brent Crude Oil price since 2008 in US Dollars, UK Pounds and Euros is shown in the chart below.

Graph showing the daily price of brent crude oil since 2008 in US Dollars, Euro and Pounds Sterling
Daily Brent Crude Oil Price since 2008 in US Dollars, Pounds Sterling and Euros per Barrel.



The data for the historic daily Brent Crude Oil spot price since 2008 came from the US Energy Information Administration, the and the daily international exchange rates forUS Dollars came from the Board of Governors of the Federal Reserve System, Washington, DC. 

From the chart above you can see that the oil price in UK Pounds and Euros (EUR) at the time of the peak on 3rd July 2008 were £72.61 and EUR 91.64 per barrel respectively.  Furthermore their receptive price on 1st March 2012 was £78.83 and EUR 94.41.  As it can be seen these vales are higher than those see at the peak price on 3rd July 2008.  Normalizing the crude oil priced in the different world currencies by indexing the prices to the value on 3rd July 2008 (i.e. by making the value on that date = 100) highlights the comparative price changes between those currencies over time.  The chart below shoes the index daily Brent Crude Oil price since 2008 in US Dollars, GB Pounds, Euros, Japanese Yen and Chinese Yuan.  Its interesting to note that compared to the 2008 peak price, the oil price at the beginning of March 2012 in Chinese Yuan and Japanese Yen is approximately 78% and 65% respectively.  Compare this to approximately 85% for the price in US Dollars, quite a difference!

Graph showing the daily price of brent crude oil indexed to the peak price in 2008 which occured on 3rd July 2008 in a number of world currencies, US Dollar, Euro, Pounds Sterling, Japaness Yen and Chines Yuan.
Daily Brent Crude Oil Price since 2008 - Indexed to 3 July 2008 - in US Dollars, Pounds Sterling, Euros, Japanese Yen and Chinese Yuan per Barrel. 





From the chart above you can clearly see that the crude oil priced in Pounds Sterling and Euro were by the begging of March 2008, higher than at the July 2008 peak (by 8% and 3% respectively).  Below is the same index chart of the Daily Brent Oil Price but for a set of emerging market currencies (Indian Rupees, Brazilian Reals, Thai Baht and Japanese Yen).  

Graph showing the daily price of brent crude oil indexed to the peak price in 2008 which occured on 3rd July 2008 in a number of world currencies, US Dollar, Japaness Yen, Indian Rupee, Brazilian Reals and Thai Baht.
Daily Brent Crude Oil Price since 2008 - Indexed to 3 July 2008 - in US Dollars, Japanese Yen, Indian Rupees, Brazilian Reals, Thai Baht per Barrel .



The worrying thing for the UK and Euro Zone is that the crude oil price has been constantly high (at closet to 100% for the UK and 90% for the Euro Zone) compared to the 2008 peak oil price since the beginning of 2011.  For the rest of the world oil prices started high at the beginning of 2011 and then fell back.  It was only since February 2012 for some of the other world currencies that the oil prices started to rise to relatively high prices seen at the 2008 peak (examples are the Indian Rupee and US Dollar).

Below is a table displaying the Brent Crude Oil Price in a number of world currencies at the July 2008 peek, at the beginning of March 2012 and the index price at the beginning of March 2012.  The currencies have been ordered such that the one with the heights indexed oil price is first and the lowest is last.  The US Dollar row is highlighted by being bold to illustrates in which currencies the oil price index are larger or lower compared to the US Dollar price. 

Table of Brent Crude Oil Price per Barrel in a Number of World Currencies       
Currency
Brent Oil Price on 3rd July 2008
Brent Oil Price on 1st March 2012
Index Price on 1 March 2012 (3rd July 2008 = 100)
72.61
78.83
108.6
91.64
94.41
103.0
6,214.32
6,179.85
99.4
861.92
832.61
96.6
733.53
701.74
95.7
150,355.00
140,348.00
93.3
231.20
215.15
93.1
143.95
125.76
87.4
1,122.49
975.28
86.9
1,109.85
938.80
84.6
4,380.00
3,693.00
84.3
470.00
377.28
80.3
986.47
792.30
80.3
4,799.29
3,835.68
79.9
149.89
116.41
77.7
147.88
113.83
77.0
196.18
139.45
71.1
15,372.0
10,206.00
66.4


As it can been seen that there is a very wide variation in the crude oil prices in local currencies and the relative change to those prices since the peak price in July 2008.  Taking the price on 3rd July 2008 as the reference point, in Pounds Sterling and Euros the crude oil price was larger by the beginning of March 2012 than it was on the reference date, by 8.6 and 3% respectively.  For all the other currencies the price is still lower, even thought it is only just for Indian Rupees.  For the majority of currencies the oil prices is around 80-90% of the 2008 peak prices, like the US Dollar.  However there are a few currencies where the oil prices is less than 80% of the 2008 peak prices (Australian Dollar, Swiss Franc, Singaporean Dollar and Japanese Yen).  Nevertheless the currency in which the crude oil prices is the lowest compared to the 2008 peak is the Japanese Yen and it the lowest by quite a margin!

The troubling thing for the UK and Euro Zone is that the crude oil price has been constantly high (at closet to 100% for the UK and 90% for the Euro Zone) compared to the 2008 peak, since the beginning of 2011.  This is not a good sign as it highlights external stresses being placed on their economies from high energy prices in their local currencies.  On the other hand the Japanese and to a lesser extent Singaporean, Swiss and Australian economies wont be suffering the same external stress from high local energy prices (although they are likely to suffer from other things instead).

So it would seem that compared to the peak crude oil prices seen in July 2008, oil is cheapest priced in Japanese Yen and the most expensive priced in Pounds Sterling. 

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