Saturday, 27 February 2016

The good and bad news about Oil falling from $130 a barrel in 2014 to $30 region

The good news is that we the consumers are getting a great deal on petrol prices for commuting, the cost of heating oil and the capacity of businesses to run with cheaper energy and transportation costs.
Filling up in a garage is barely a pound. Heating oil is a fraction of its cost in 2011-14. Business operating costs are lower.
The bad news is that this is severely impacting on financial viability of the North Sea businesses, upon which so much of the North East businesses depends. This is undoubtedly affecting businesses and jobs as the extraction of oil becomes uneconomic and the businesses that support the sector struggle through viability and lack of investment.

The causation of the price reduction is multiple but has three real triggers:
- shale gas in America has resulted in the production of much cheaper energy for businesses both in the USA and around the world; this has underpinned so much of the USA economic recovery. This cheap energy revolution has had impacts.
- a price war has resulted between the oil producers and the shale gas industry which sees the oil producers continue to flood the market notwithstanding an oil glut.
- the impact of foreign policy changes that sees countries like Iran now able to provide oil to overseas customers post the lifting of sanctions and the Geneva Agreement.
I do not see the price rising in a hurry albeit this price war cannot last forever. The argument in favour of energy security for a country is definitely made clear. Otherwise we are subject to overseas markets, dodgy dictators, problems of supply, and declining reserves in the North Sea. This is one of the reasons I support energy production in the UK. We need to have control of our energy supplies. Those who suggest otherwise have to tell us where we would get this energy from at a reasonable cost when this price war ends - as it surely will.