Europe Does Its Bit

Apart from the human tragedy dimension, the events which are unfolding in and around New Orleans will have an economic impact which in a globalised world can ripple through each and every economy. Fears that gasoline shortages could produce a recession in the US are going the rounds. James Hamilton of Econbrowser probably has the best coverage (here and here) while Dave Altig at MacroBlog is following the debate around the blogs (here, and here). Personally I’m taking a this is serious but lets keep calm view.

As Econbrowser argues the real problem is not with crude prices as such, but with the more short term issue of gasoline prices at the pump. The big problem is that the US has a large strategic crude reserve, but no gasoline reserve, while we, here in Europe, do have large stocks of gasoline. So it was a welcome surprise to open the FT in my browser this morning and read this report:

European countries were on Thursday preparing to release emergency stockpiles of petrol as the US confirmed that some refineries hit by Hurricane Katrina would remain shut for several months. Earlier US officials had estimated the closures at only one to two weeks…..

Germany has assured the IEA that it would release stocks if asked to participate if needed. Germany holds the largest number of barrels of petrol in public storage. These extra barrels could hit the markets within one or two days. France, Spain and Italy also have large emergency gasoline reserves.”

And now AP has just reported that Germany is about to send supplies, while earlier Reuters had a similar story from Spain.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

9 thoughts on “Europe Does Its Bit

  1. Gasoline is rather more volatile the crude oil.

    How easy is it to ship gasoline across the Atlantic ? Can you simply pump it into a standard tanker ? How many of those are available right now ? What is the port capacity for gasoline on both sides ?

    And I presume that reserves equivalent to 90 days German or Spanish consumption is not exactly 90
    days US consumption ?

    Related question: I see very little news about international humanitarian relief efforts being prepared. Are they not needed ? Are the main media just not reporting them ?

  2. PS: At what price would that gasoline be released ? Could bring nice profits for the treasuries.

  3. Not true, not true. There’s plenty to blame on Bush in this disaster, and there was an initial quote along these lines, but that stance has been amended. On the other hand, the chaos factor is enormous and I don’t think people on the scene have any way to deal with international offers, much less seek them out. For private donations, the American Red Cross is still the way to go.

  4. The German reserves are 50/50 crude oil/processed stuff.And no, the US consumption is vastly larger. Therefore, is it sensible to release reserves if nothing is done to lower consumption? Lowering the price will have the opposite effect.

    The German reserves are held on the government’s orders but not by the government. It wouldn’t benefit the government except by taxation.

  5. Belgium has three medical teams ready, called B-Fast. They are waiting for the American ambassador to give them ‘the green light’.

  6. Like I was suggesting, it is the CA deficit which is likely to be where the most impact is noted (that and short term unemployment numbers). Morgan Stanley’s Richard Berner points out the portis currently:

    “accounting for 8.9% of exports and 3.6% of imports”

    It is much more important by volume than by value, since most of the agricultural products have low price/weight ratios.

    Of course a spike in the US deficit could push the dollar down and the euro up slightly.

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