[angrysurgeon]

1 Billion US dollars = 1 coin

The EU, according to the world factbook consumes (2004) 14 million barrels of oil daily. At the same time, the EU produces (=GDP) 14380 coins yearly = 39,39 coins USD daily.

The question is, how much of its income is the EU prepared to pay for its oil before it starts to really hurt?

2005 APOI (average price of oil) = 50 USD/barrel
2006 = 60
2007 = 80
2008 = 120

This translates to a daily cost of:

2005 = 50 USD/barrel * 14 * 10^6 = 0,7 coins => 1,8% of "daily income"
2006 = 0,84 coins = 2,1%
2007 = 1,12 coins = 2,8%
2008 = 1,68 coins = 4,26%


So, Europe, at a daily cost of 4,26 % of its income has a yearly inflation of 4%. This means more or less that inflation and the price of oil will roughly be following each other. And 4 % is really nothing. Countries can take at least 8 % yearly. Following the above logic, this translates to an oilprice of roughly 240 USD/barrel.

Now, WHEN will it really hurt for the EU? At what oilprice? at 12% of its daily income = 360 USD/b ? 16% = 480 USD/b? 20% of its daily income= 600 USD/b?

[Ainan]

Are we taking bets? What is important to remember is that the EU is made up of a collection of countrys with different economic status. I believe nations such as Britain and Germany could handle $500 oil without 'collapsing', in fact the western European nations can probably handle oil prices higher than any other country on Earth.

Oh sure there will be a lot of moaning, a lot of re-adjusting and a few riots(Business as usual?

I would pay £5 a litre,(Over 4 times the current price) thats only £20 for a 60 mile trip. Hell, costs you that much on the train these days.

£20 could get most people to the supermarket and back 3 times. Considering you probably spend £100 each trip, its only a small proportion of the overall cost.

[Cashmere]

Are we taking bets? What is important to remember is that the EU is made up of a collection of countrys with different economic status. I believe nations such as Britain and Germany could handle $500 oil without 'collapsing',

We disagree completely.

At 300$ a barrel there is no economy left standing.

[CarlosFerreira]

The thing about Europe is that, as someone said, it doesn't have a uniform cushion to take on the price increases. Big deal, you can say. It's the same within countries! But, really, it's not.

Portugal (where I live) and - case study - Germany have the same currency, Euro, the same overall inflation (4%) and the same interest rates dictated by the European Central Bank (4% today, probably 4,25% come tomorrow). The problem is, currency doesn't really show you the true value of things. Nothing new there - you can probably guess that an Euro in Portugal doesn't buy the same amount of stuff it buys in Germany; my point is, the social tissue (that's people) in different countries cannot withstand the same amounts of pressure.

Portugal used to have one of the highest fuel prices in Europe. Also, we have one of the weakest economies. It was already overstretched; it's twisting hard right now. I say in the news, there was about a 4 to 7% decrease in road traffic entering the two largest cities, compared to last year; we've already had a three-day stop in the truck/lorries drivers, with a few fuel runs last month. Our ambulances are currently going around with red sticker claiming they need help to pay the fuel. Government is having a bad time - half a year ago, they were in for the second mandate in 2009 election, with absolute majority in Parliament, not it's looking bleak for them.

So, when (note I didn't say if...) it hits $200 a barrel, I don't know what will happen. All I know is that, right now, we're seeing stagflation. The stock market plummeted about 20% in a month. I tell you, it's going to be rough.

[jlw61]

I've come to the conclusion that things are going to go on, quite well and while we'll see a few problems here and there, the dislocations will be tolerable. As oil climbs past $150 USD, perhaps even $175 USD, people will be somewhat amazed at the resiliance of the US and world economies.

Then at some point, boom. No snowball effect, just a cliff.

If it has to happen, I just hope it's at least 6 months out.

[mrobert]

Oil price could stabilise at some point, where it creates enough demand destructions to counterbalance the decline in oil output.

It will be business as usual to some, and death for others.

[CarlosFerreira]

I've come to the conclusion that things are going to go on, quite well and while we'll see a few problems here and there, the dislocations will be tolerable. As oil climbs past $150 USD, perhaps even $175 USD, people will be somewhat amazed at the resiliance of the US and world economies.

Then at some point, boom. No snowball effect, just a cliff.

My point is that some economies in EU are going to suffer earlier: probably the most indebted and weaker, that rely more on tertiary sector (services and sales) than on the primary and second sectors (agriculture and industrialization) for their GDP are going to suffer earlier. That's just a theory; again, Portugal fits nicely here: the overall EU inflation is 4%, so the ECB just raised interest rates to 4,25% to try and bring some price stability to the system. However, the Portuguese inflation is the lower in EU, only 2,8%, and we are in an almost-recession state, so this will certainly hurt within the current model!

I think the whole shrinkage system can probably bring some benefits when it come to stability and reliance to the system. However, with the need to keep public deficit within parameters (3% GDP, maximum), the state won't help keep things moving, and the whole thing will grind to a halt very, very quickly. Social unrest will follow.

I suppose the model applies to other EU countries, only the threshold of "sickness" is different from country to country.

In a way, this part of EU has started feeling sick some $40 per barrel ago...

[kilik]

Here in Northern Europe I think we will handle at least $500/barrell pretty easily.

For instance in Norway 55% of the price is still taxes. Even at $20/barrell we were paying $7/gallon and now we're paying $11, so it's not much of a difference in relative terms.

For instance if prices go from $150 to $200 it will only increase the gas price with 14%. If we go from $150 to $500 we will only get a 96% gas price increase, which is not more than the increase we've seen in the US the last two years. If we go from $150 to $1000 the gas price will triple compared to today. By the time we reach those prices the dollar is probably worth less than today and goverment may have reduced taxes, so the increase could be even less.

[Madpaddy]

CarlosF, I hear you completely.
Joining the euro currency is really coming back to bite Ireland in the ass now I tell you.

The low interest rates fuelled the speculative property boom and rates kept going lower even as the property prices went higher and higher.

Now the boom has ended and when we need low interest rates, the exact opposite is happening.

Of course many people said it was mad to join the euro when our biggest trading partner the UK was not, but trying to show we were independent of sterling was part of the attraction for the powers that be. Another underlying reason for our no to Lisbon treaty result BTW.

[mrobert]

Europe can take more, because our driving patterns are also different.

[GeneralGreen]

The banks are already in a world of pain with the housing market starting to crash in the UK "whose housing market is in worse shape then the USA" France and , Germany..I expect if oil stays around 150 USD bbl it will crash the housing market..lead to stagflation..and inevitable recession "Denmark is already there' So i think 150 USD a bbl and the EU is feeling pretty queezy..
On prices....I think most EU countries "excluding the new added Eastern states' can handle oil up to 300 USD bbl "though their economies will look like crap' but I believe people will still drive cars ect...
I don't think oil price is the straw that breaks the camels back..
I think shortage is going to be!
As long as oil comes in on time with the amount needed to satisfy the mass..I think things will continue to truck along. Shortage is the monster that will wreck havoc. Not necessarily price .

Europe can take more, because our driving patterns are also different.

No they can't! Oil effects inflation, banking, comadities, food prices ect... not just the cash you pay to fill up the tank.
Think like this; say I make 2,500 USD a month
Now food is 400 a month
gas and car expense 600 a month
clothing, cafe's ect are all going up in price....Movie tickets even are double what they were 4 years ago...what about heating bills in winter? electric? Water bill? Taxes?
So oil at 300 bbl my food would run likely 800 a month, car expense 1,200 a month, I would hardly be able to pay the utility bills, and I have no money left to buy basic luxury items..Not to mention the dollar would likely lose more of its value and I wouldnt be getting but only a 3% year pay increase that counts for inflation.
That would be me and most other middle class people..What effect will that have on the Airlines? Cafes? Wal marts? Auto industry? Clothing industry esp fashion clothing like say Ralph Lauren? 300 oil would be disastrous for the West.
It would crash the markets , real estate ect...Likely 300 oil will lead to a serve recession if not a start of a depression.

[CarlosFerreira]

Stagflation is bound to bite, no one can't stop from happening.

Economy presents the fact that in order to produce something, you need to spend capital in materials. As the most important material raises in price, inflation will rise. That's a fact. Now, the real news is that the rise is being (it hasn't stopped) so strong that little or no money remains for further investment. Game over: price increase and little or no growth.

Our civilization is addicted to growth. That's the problem with this model. We know we can't grow forever, that's logical. However, we're so overstretched right now that now growing rings the bell.

So, to answer the main question: at the current ($145 per barrel), the EU economy is hurting. Bad.

[mrobert]

@GeneralGreen: I said easier. Not that it won't affect them.
However, I bet that in 3 weeks when I will go on hollyday in Croatia, I will have to wait again for 2 hours to exit the highway, and there will be 11 toll boots charging people, and the usual yearly craze.

I mentioned this earlier on this boards, and I have mentioning this again, even though it's a sensitive subject. But here we go:

Do you think that everyone has an equal role and importance in the economy of a country? One in four people in my country, lives at the expense of others. And I am not talking about people who are dance instructors. I am talking about state owned companies, where people go, do nothing, and get well paid. Then they go home and don't pay their heat/water/etc bills, and nobody does anything. They also collect various subsidies. These are people who use resources, and produce NOTHING. Once you get them out of the system, you can use their resources to ease the pain of the others.

Why do you think oil skyrocketed and the world is still going ahead pretty nicely. There is no drama yet.

It's called economical cleansing and it will happen. This will mitigate the road to peakoil nicely. When time will come for the final disaster to happen, 99% it won't happen. Those of us that will be left there, will get along just nicely. Offcourse, in a different manner.

I have spent the past 3 years analysing peak oil in real life. Looking at what people do.
Do you believe that once the economy won't be able to subsidies the welfare of people that don't produce anything, we will go bust? No we don't. They will.

Inflation figures are real. Let me elaborate.
I bought a new laptop. It costed me 50% of what it was 3 years ago. I just checked the roaming charges because I am about to leave the country on vacation. Wow! Down by almost 50% since last year. Considering that I used at least Euro 100 (USD 155) worth of roaming traffic last year (I need it for business use), I will be saving a full tank of gas on it this year. I need about 4 tanks for the roadtrip. Ok. Gas price evened up.
Hotel charge is the same, so I am about still there.

Offcourse people complain that inflation is 50% when all they buy, are 3 things that went up 50% in the past year. They don't use other services which went down 46% to have the real inflation.

9 out of 10 people are hurt by electricity prices. Yet when you tell them to turn of a light they don't use, they don't. They will either do it, or vanish.

Smart people will turn to a sustainable lifestyle, and get along just fine. The rest will hurt, expecting for miracles.

Thank God I grew up spending my summer at my grandparents, in a place where their were selfsustained 99.99%. The other 0.001% was:
- 1Kw worth of monthly electricity, when we sometimes turned on a light in the evening
- The local newspaper

Take out WASTE from the equation, and we have a 99% chance of making it.

It's what we SHOULD HAVE DONE with oil. Use it to improve a sustainable lifestyle, mankind enjoyed for thousands of years.

I bet we can make a team of 50 people from these forums, with expertise in various areas, and build a 100% sustainable and modern society model that can go on forever. It's not that hard, and one way or the other, it will be done.

[CarlosFerreira]

mrobert, I see what you mean. We get some of that here in Portugal - not so strong, but still not good.

Problem is, I think than when things get really tough, the poor will be the first to pay the bill, the people that get all the privileges will keep them. In a word, it will get worst.

The kind of things you mentioned as going strongly cheaper - that's laptops, roaming - are the one that had a very high margin in which to cut, and whose increase in market penetration allows them to lower the prices. Stuff like food, gas - things people HAVE to buy, are going more and more expensive. And the poor will be the ones that feel it, damn that habit of eating!

[mrobert]

@CarlosFerreira: It's unfortunate, but it's true. It's the consequence of developing an evergrowing society, which is based on a fixed amount of resources, and living on someone else's expense.

Ironically ... I wouldn't on the poor to get hit.

Where my parents live, people still live of basic agriculture. Oil could vanish and they wouldn't even know it.

[mrobert]

@CarlosFerreira: It's unfortunate, but it's true. It's the consequence of developing an evergrowing society, which is based on a fixed amount of resources, and living on someone else's expense.

Ironically ... I wouldn't bet on the poor to get hit.

Where my parents live, people still live of basic agriculture. Oil could vanish and they wouldn't even know it.