Tuesday, 26 June 2012

The cost of Oil

It is welcome news that the cost of petrol and oil generally has fallen significantly these last few weeks. I have long campaigned to try and bring the cost to the consumer down but the key issue is the oil price, and it is worth analysing its cost:

2012: up from $75 a barrel of oil to $100, although coming down again now
May 2010: $55 dollars a barrel
2008: $73 a barrel
2007: $30 a barrel
around 2000: around $20 a barrel
In the 1970': $10 a barrel

The cause of oil prices rising is fundamentally due to unrest in the Middle East. Sanctions on oil from Iran and Syria have had a big effect on prices, coupled to the unrest of the Arab Spring. Democracy may slowly be coming to the Near and Middle East but it is at a cost to the consumer.

In addition, there is ever greater demand for oil. Capacity is at tight levels. For example, Saudi Arabia's production is at a 30 year high. As Iran behaves ever more aggresively, and as Syria descends ever more quickly into the mire of civil war and anarchy, it is worth remembering that any escalation in conflicts in these regions will affect the oil price. We are going to be vulnerable to oil prices and shocks, so long as supply is stagnant, demand is constant, and unrest likely.

The argument that the Chancellor could change the position if he stopped taxing the citizen so much is true to a degree. But the tax that he gets in for petrol is a supply of money that is used on schools, hospitals, public services and repaying the deficit. He has frozen the tax take since the May 2010 election [which is a very different approach to Mr Balls - who would raise the petrol price all day /  every day - as the previous government did repeatedly]. Fair Fuel and other organisations are fighting a good campaign but it is simply not correct to say that cutting the cost of fuel would boost the economy by exactly the equivalent amount.

Here in Northumberland we are doing what we can to ease the pain: oil buying clubs are making a difference and support for the Petrol filling stations, and the opening of the Kielder station, are positiive steps. On this issue the key message is use it or lose it! Our local stations need our support or they will not survive. It is no different to a village shop, post office or village pub.

For my part in the House of Commons I am lobbying for a reduction but more particularly I seek an investigation into the Oil Companies by the OFT. This is what I have called for and continue to pursue.