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Monthly Report - Focus
On the impact of falling oil prices on the current balanceOn the impact of falling oil prices on the current balance

The sharp drop in oil prices over the last few months has surprised both those in the know and others. The price of a barrel of Brent oil, Europe's benchmark, went from 83 euros in January 2014 to below 70 euros in November, down by 16%. Less conspicuous but also important has been the fall in the price of gas, with the price falling by 4% between the first half of 2013 and the same period in 2014.1 This will undoubtedly be of great help to the main countries in the euro area, all with considerable energy deficits.

In Spain, specifically, gross imports of crude oil reached 34.8 billion euros in 2013 (35 million barrels a month at 82 euros per barrel on average) while gross imports of gas, the second in importance, totalled 10.7 billion euros. Both together represent 97.6% of the total gross energy imports.2

The energy deficit has increased substantially over the last few years, going from 15 billion euros in 2002 to 34.5 billion euros in 2013, an all-time record. This increase was particularly due to the rising price of energy goods and especially higher oil prices. Unlike most consumer goods, demand for energy products does not depend much on their price and it is therefore not surprising that the value of energy imports is closely linked to the Brent barrel price. In fact, since 2002 the consumption of crude oil in real terms has only increased by 4%.

The recent fall in oil prices has therefore created a lot of expectation, especially because several factors suggest this is not a temporary phenomenon (although commodities are the epitome of a volatile and unpredictable market). One of the factors helping to push down commodity prices in general and oil in particular is the appreciation of the dollar: with a lower price in dollars, producers get the same income in their own local currency even though the price may have fallen. Moreover, supply factors are also having an effect in the specific case of oil, such as the increase in production in the US and the behaviour of OPEC (see the article in the Dossier «Weakness, shale and Saudi Arabia's strategy behind the upheaval in oil» for a more detailed explanation of these factors).

Should it consolidate, this scenario of lower oil prices might result in significant savings for the Spanish economy. For example, in our central forecast scenario, which assumes an average Brent barrel price of 68 euros/barrel in 2015 (11% lower than the average price of 76 euros we expect for the end of 2014), the savings would be around 3.4 billion euros.3 In a more benevolent scenario as far as Spain is concerned, a drop of 18% (62 euros/barrel, the current level) would represent savings of nearly 6 billion euros.

In short, the fall in oil prices will provide considerable support for Spain's economic recovery, recently threatened by weakness in the euro area. Moreover, it will also help the adjustment in the external balance which, over the last few months, has changed direction and is now approaching negative figures again.

1. Eurostat figures: price of gas excluding tariffs for industrial consumption, band I3.

2. Figures published by Datacomex and JODI. These differ from Eurostat's estimates as the latter uses a methodology that harmonises data for all countries in the euro area.

3. For 2015 we expect the euro/dollar exchange rate to be around 1.23 on average.

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