Tuesday, February 21, 2012

Oil Prices

With oil, if it's not one thing it's another. Remember Libya? When that was all sorted out, the oil price was supposed to get back to normal, and the poor squeezed motorist would be able to get back to burning off the remaining supplies in his Range Rover. Now it's Iran that's the culprit for the oil price back above $120/bbl. The fact is, much of the world's oil originates in countries that don't have stable Western-friendly democracies. Which means that even with ordinary luck, oil supply is a bit like Tube travel - most days there is some disruption.

In an oil-dependent country like the UK, oil prices have a very real effect on the economy. We've already seen motorists driving less in response to high fuel prices and economic pressures, and there's a real danger that an oil price spike could tip the economy back into recession. I've pointed out before on this blog that a sensible move would be to aim to make the economy less dependent on oil so we're less vulnerable to the chill winds of geopolitics. In the recent past, the Chancellor has done the opposite, cutting fuel duty and giving the signal that high oil prices are a temporary aberration. Surely sooner or later they'll get the message that unreliable supply coupled with rising demand from the middle classes of China and India spell irreversable decline for any economy that's designed around cheap oil?

It would seem pretty hard to argue against the idea that to achieve economic growth we need to substitute oil-fuelled travel with alternatives, yet this government don't seem to have any policy to tackle oil dependency. HS2 benefits are too far in the future. Public transport fares are rising and some services are being cut. Electric car takeup has been disappointing despite the £5000-per-car government subsidy, with a little over 1000 sold so far compared to the 8500 grants that were available. Cycling is an alternative that could be available to a huge number of people at low cost, but for most people the lack of safe cycle routes puts them off. With the right investment, that could be reversed: we know it can be done from experience in Continental countries, and the side-benefits in terms of improved public health, lowered carbon and particulate emissions and better neighborhoods are huge. All it will take is a bold and far-sighted politician. Unfortunately, in the UK at least, that's an oxymoron.


5 comments:

  1. Well if the government is looking for something to do with the remaining 7,500 electric car grants I'll happily take one (or even a 1/5 of one...) and purchase myself a nice new bit of transport kit that doesn't even need electricity ;-)

    ReplyDelete
  2. I don`t know what is going with the oil market, but in my country the prices jump significantly. Nice article.
    inventory clerk London

    ReplyDelete
  3. It's worth pointing out that, while nominally less than the $147 oil price record of 2008, currency exchange fluctuations mean that todays $120+ price, when converted to Euro or Sterling, is significantly higher than 2008's nominal record.

    ReplyDelete
  4. Further to this - in the abstract, one of the ideal things to get the UK on a saner economic footing, make manufacturers & other exporters more competitive, would be a currency devaluation. Devalue Sterling by 20%, and our export prices become 20% cheaper, giving British businesses a huge edge vs US & European competitors.

    The down side is that imports become 20% more expensive. Until a few years ago, Britain was a net exporter of oil, so this wasn't a huge problem (unless you absolutely HAD to have that German car or Japanese telly). However, the North Sea is starting to run dry (many years of life left in it, but production is way down from the peak), so now any sterling devaluation gets passed straight on to the petrol pump. Which in turn gets passed on to agriculture, and basically any high volume freight-dependent business. So you get heavy inflation even on locally grown food. And all of a sudden, that 20% boost to businesses doesn't look so great, when all their staff need bigger pay rises to make ends meet.

    ReplyDelete
  5. I heard this morning on the R4 "Today" programme that the electric car subsidy was to be extended to vans. This is where it should have started, and finished, in any case. Battery cars are an evolutionary dead-end, as the technology will never deliver the speed and range of internal combustion at anywhere close to a comparable cost. Delivery vans however, and quite possibly taxis, could be a sensible use of the technology and of course nothing new - remember milk floats? A van does a daily round of visits or deliveries and returns ot depot at night where it can spend all night being recharged. Total mileage covered in a city like London would be well within the range available from current batteries.

    It also has the advantage that there is at least some merit in vans for deliveries or plumbers and electricians, unlike private cars in a city environment.

    I have no idea when we are going to reach peak oil, except that I am sure that more sand more of the stuff will be found an exploited, only it will get harder or dearer (deepwater horizon) or dirtier (Canadian tar sands) to extract. Oil price will continue to rise anyway because as you say, the middle classes of India and China will buy cars, and the demand/supply equation will work against us.

    More to the point, most young people today can't afford a car, let alone any juice to put in it. The proportion of 18-25 year olds holding driving licences has declined from around 48% in the early 90s to around 32% now, so basically 2/3rds of youg people couldn't drive a car even if they could afford one. Even affluent boroughs like Westminster have <50% of households having access to a car.

    I look forward, not entirely without hope, to the day when young people's seething rage about the way they have been ripped off by their elders, who have walked off with all the guaranteed pensions, cheap housing, cheap and abundant credit, and jobs, boils over. Their lack of wherewithal to own a car coupled with the denial to them of decent public transport and safe cycling conditions by all the middle aged "Mondeo Men" of Blairite fame (people like me, I'm afraid) will be one more thing to enrage them.

    ReplyDelete