Posted in: Gas Prices,
by Patrick DeHaan on May 17, 2012 09:24 AM
Greece has been all over the news lately, and their situation only looks to get worse. Banks have seen citizens running to take their money out, unsure of the future. Over 3 billion euros has been withdrawn in the past few days, with 800 million euros being withdrawn in a single day, one of the largest single day pullouts in the country. You might be asking what the heck this has to do with gas prices in the U.S.- I'll get there.
You see, the situation in Greece has devalued the euro significantly, driving the dollar higher because of the situation. Since oil is globally traded in dollars, when the dollar outperforms the euro, oil prices tend to fall, and thus gasoline prices drop. When the opposite occurs, oil prices rise, and thus gasoline prices face upward pressure as well.
The concern I have that could lead to higher oil prices would be if Greece exits the EU, and the euro starts again to build strength. While the weakness of Greece is hurting other countries, it's also leading to lower oil prices- not because of a shift in U.S. monetary policy, but because Greece is a member of the EU and its chief currency, the euro.
If Greece is forced out or exits the EU, while it may mean a short term hit to the euro, in the weeks ahead, it would likely build value again after shedding the debt ridden country. Spain also comes to mind, facing similar a similar upward battle in recent days. We could be at the beginning of such global debt issues that it could keep growth of economies to a minimum- but certainly that's another argument all together.
For now, we're keeping a watchful eye on the euro vs. dollar standard. If the euro strengthens considerably against the dollar, you can bet oil prices will rise, and thus we could see gasoline prices rise as well. The only decent news for motorists here is that summer is already here, and I don't expect this situation to make waves until summer is mostly over, if even at that time.