These oil prices don’t add up

Jun 13 2008 by Bill Midgley, The Journal

I KNOW that the style of mathematics has changed greatly since whatever I was forced to learn in this context was hammered in to me, but surely some basics remain unchanged.

Calculus, logarithms, and slide rules have little part to play in the modern world of computer-based solutions, and to many of today’s students no doubt seem as far back as the Roman Wall.

I confess I am struggling with my arithmetic, once one of my stronger subjects, when the issue of oil prices is discussed.

The UK still produces a fair amount of its own oil and will do so for a number of years. But as oil is priced in dollars as and when the dollar weakens we have to pay more for our oil, our own oil, with the knock on effect on inflation. When the dollar strengthens we should see the opposite effect, but it simply does not happen.

The cost goes up whatever the movement in exchange rates. Good for the Chancellor with his windfall profits, better for the oil producers, but best of all for those commodity speculators who are buying forward, pushing up prices and making billions at the expense of the consumer. But not good for the economy.

The real impact of high energy prices has still to be faced, an impact that will hit us all over the next 12 months, with increasing inflation rates. We are told, however, that there is no shortage of oil in the world markets, the problem is one of refinement, particularly diesel.

No new refineries are been built in spite of need and the problem is unlikely to improve. So why does a Government which is obsessed with regulation, and the European Union with the same priorities, able to regulate small businesses to extinction not put into place a positive regulatory regime before too many more companies hit the wall?

Either make the oil producing companies spend part of their vast profits on new plant, or hit them with a windfall tax and let the Government commission new and extended provision.

That may seem like nationalisation but it does not have to be. It is the Government commissioning and for once the tax payer not having to foot the bill. Too simple? Probably, so I will go back to my abacus and check my figures, I must have a wrong coloured bead in there somewhere.

Bill Midgley is a North East business executive and former chairman of British Chambers of Commerce