NEWS / Foreign Exchange

Energy prices cast a shadow - again

US gasoline prices have rocketed in recent weeks and European prices have, to some extent, followed. To be-gin with, the rise was driven by a widening crack spread (difference between price of crude oil and price of gasoline), but more lately the price of oil has also been rising, driven higher by among other things the detainment by Iran of British naval personnel conducting a search operation in the northern Gulf.

The widening of the crack spread looks like a repeat of a pattern seen in recent years. There was a similar movement in 2006. Basically these crack spread widenings seem to have been related to the lack of refinery capacity in the USA ahead of the so-called driving season in the summer. Last year, the spread remained wide until August.

Gasoline prices have now risen so much that they will have an impact on especially the US economy during 2007 (see USA section). More expensive gasoline will likely have a cooling effect on consumption in Q2 and into the summer. But if the spread contracts again in the autumn, it may stimulate consumption once more towards the end of the year - as happened in 2006. Overall, we do not estimate that energy prices will act as a brake on global growth in 2007 - in sharp contrast to the case in 2005 and 2006. However, this does not detract from the increase in gasoline prices being bad news for growth in the short term - especially in the USA.