Oil Prices Rise As UN Backs Libya No-Fly Zone
After a slight fall in oil prices at the start of the week, prices are on the rise again after the UN backed a no-fly zone over Libya.
Prices fell slightly at the beginning of the week as there were concerns that the Japanese disaster would affect the global economy and in particular manufacturing growth. If this happened then there would obviously be reduced demand for fuel and energy.
However, it’s the continued unrest in the Middle East and North Africa that is affecting oil prices at the moment. Brent Crude is up around $2 a barrel to $112.46 (Thursday).
Last night the United Nations voted in favour of a no fly zone over Libya and as a result in early trading prices of Brent Crude jumped to $117.23 a barrel – an increase of $10 in two days. The markets are getting increasingly jittery that tensions in the Middle East will affect oil supplies.
Libya’s oil output has not yet been replaced although Saudi Arabia said it would be able to increase output to make up the shortfall. However, there are now concerns that the escalation of the protests in Bahrain will spread into Saudi Arabia especially after the Saudis sent in troops to Bahrain at the request of the Bahrain Royal Family.
If trouble spills over into Saudi Arabia the oil problem will become much worse and prices will undoubtedly rise. Saudi Arabia is the largest oil producer in the world and any problems in the country will surely impact on the global economy. It’s for this reason that Saudi Arabia agreed to send in troops to Bahrain to try to stabilise the situation.
Meanwhile, Japan has lost a major source of energy with the shutdown of its nuclear power plants. It’s had to switch to other sources of energy including oil and gas which has obviously impacted on supply and demand. This means that it will also impact on gas and oil prices. Even though many big Japanese companies such as Toyota, Nissan and Sony have closed factories, the loss of its nuclear power supply means world oil and gas prices will be hit.
On Wednesday two foreign banks closed all their branches in Bahrain. HSBC and Standard Chartered employ around 800 people between them and their closure is a sign that what began as a political problem could soon escalate into an economic one affecting Western economies.
If political unrest in the Middle East continues it could start to affect oil production and if oil production is interrupted this could quickly impact on Western economies and slow economic recovery.
Turmoil in the Middle East and Japan has already impacted on business energy prices in the UK as Utility Exchange has already reported this week. Small and medium sized businesses have already seen business energy prices rise by around 7% over the last week and the Financial Times reports that European electricity prices had their biggest rise since 2003.
All this means that if your business electricity or business gas contract is due for renewal it’s advisable to choose a fixed rate deal to ensure future oil and gas price rises don’t impact negatively on your business energy costs.
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Business Begins To See The Effect Of Rising Oil Prices
Rising oil prices are not just affecting motorists travelling to and from work but businesses are now beginning to feel the effects of record fuel prices.
Businesses such as those involved in manufacturing or the haulage business are having to change the way they work in order to cope with the increasing oil prices.
A brick manufacturer in Buckinghamshire told The Daily Telegraph that it had gone back to using wood to fire its kilns – something the firm hasn’t done since 1926. Fortunately the company, HG Matthews, owns 90 acres of woodland close to its manufacturing base. It means that rather than pay the rising diesel prices the company can fire its new wood burning kiln practically for free.
The boss of the company, Jim Matthews, said “The price of diesel has really eaten into our profile margins”. He added, “If oil continues to climb, it will become prohibitively expensive to fire our kilns with diesel”.
According to Mr Matthews red diesel, which he uses to fire his kilns, was only 7p a litre ten years ago and has now increased to 70p a litre. It means that every time a kiln is fired up it costs £3,150 for the diesel alone.
After he’s in a wood processing plant he thinks the wood fired kiln will cut their business energy prices and prove to be cheaper than diesel fuelled kilns.
He said “I think there is a strong possibility of switching our entire production of 2.5 million bricks a year to wood. Oil is only going one way and we want to be ahead of the game”.
Meanwhile travel companies have warned that rising oil prices could reduce demand for overseas holidays and will therefore affect profits margins. While companies say that demand hasn’t been affected yet they warn that if oil prices continue to increase it could cause problems.
Oil affects most sectors of industry and therefore high oil prices could start to impact on the economy and stall the recovery.
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George Osborne Hints At No Fuel Duty Increase
In a speech at the Conservative party spring conference at the weekend, George Osborne hinted that he will not impose the 1p fuel duty rise due in April.
The announcement that the 1p fuel duty rise is not likely to be imposed comes as some motorists in Kent are paying £1.41 a litre for petrol and £1.45 for diesel. For the first time ever petrol has broken through the £6 a gallon barrier and the price of petrol increasing 6.93p a litre since the beginning of the year.
Mr Osborne hinted at the Tory party conference in Cardiff that he would get rid of the 1p fuel duty rise to help to ease the pressure on families facing problems as oil prices continue to soar. While it’s not definite that the Chancellor will drop the 1p fuel duty rise, Mr Osborne said “I won’t take risks with economic stability, or wreck the public finances. But I promise you I am doing everything I can to find a way to help”.
There are concerns that the Libyan crisis could push oil prices up even further with some ministers warning that petrol could rise above £2 a litre and even reach £4 a litre. The international development minister, Alan Duncan, a former oil trader, think petrol prices could increase if the situation in the Middle East continues. He said “When I said oil would go through $100, people thought I was bonkers. Now we are not far off $130”.
Meanwhile the founder of Fair Fuel UK, Peter Carroll, said “We are being pushed into a fuel price crisis. My reaction to these prices is one of horror, of what it will do to the economy, what it will do to people and what it will do to business”. He added “We already have carers who can’t afford to get out into rural areas. White van man is being slaughtered. The government must stop this duty rise”.
The Liberal Democrats have always been against helping motorists on environmental grounds but they seem to have changed their minds. The LibDem party president, Tim Farron admitted that the high fuel costs meant that people on low incomes were considering giving up work so they didn’t have to pay huge travel costs.
Research has shown that motorists in Britain have suffered at the petrol pump far more than those in other European countries. British drivers have seen petrol and diesel prices rise twice as much as prices in Germany, Finland and Holland with only Greece having a higher fuel price rise due to their austerity measures. Diesel in Britain is now the most costly in Europe.
While petrol prices have risen so have the number of people driving off from petrol stations without paying. In the first nine months of 2020 the number of “drive offs” rose by 52%.
The Treasury is reported to be still considering some kind of fuel duty stabiliser. However, it remains to be seen what actions George Osborne takes on 23 March when the budget is announced. High fuel prices are affecting business and ordinary consumers. As prices rise it becomes more expensive for people to travel to and from work which cannot be good for the economy, especially if people think they are better off not working in order to avoid travelling expenses.
Despite the fact that oil prices have actually fallen slightly this week on the back of reassurance from Saudi Arabia that they could meet the short fall in oil production if necessary, it’s not likely that we will see petrol prices fall.
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Petrol Tanker Drivers Threaten More Strike Action While Ed Balls Calls For Reduction In VAT On Petrol
Petrol tanker drivers are threatening more strike action as the shadow chancellor, Ed Balls, calls on the Government to give up the recent VAT rise on petrol to help motorists.
Members of the Unite Union met yesterday to discuss further strike action as Middle East tensions push up pump prices higher and higher. However, Ed balls is calling for the Government to abandon its recent VAT rise on petrol to help motorists as fuel prices rocket.
The AA has condemned the threat of strike action at a time when prices are changing almost every day. The AA said it was “the last thing UK motorists needed”. They said that if strikes went ahead it could lead to shortages, rationing, profiteering and even higher prices.
The general secretary of Unite, Len McClusky, said that people were not happy with high petrol prices but said that tanker drivers were being treated poorly. He added that the Government “cannot sit this out because they too have a role in bringing security to the nation’s fuel supplies”.
Mr McClusky wants better pay for tanker drivers and improved conditions but also wants major distribution companies to put in place fuel price stability mechanisms. He said This commodity is too important to be left to vagaries of the market. This is now a very serious situation. The industry is on a highway to catastrophe”.
The president of the AA, Edmund King, said this was the last thing needed when “there are record prices at the pumps, a threatened tax increase on April 1, rising oil prices caused by uncertainty in Libya and the Middle East”.
Meanwhile, Ed balls has called on the Government to give up the recent VAT increase on petrol as prices get closer and closer to £1.40 a litre. He said this would save around 3p a litre on petrol prices and would help millions of people struggling with the rising cost of living.
Pressure is growing on George Osborne to do something as families and small businesses struggle with rising costs. Mr Balls said in The Sunday Times that Britain faced the prospect of a “cost of living crisis”.
He said “Filling up a family car now costs £65 -£75. World oil prices are already very high and the chancellor has chosen, at this very moment, to raise fuel prices further, by pushing up VAT. I am urging him to reverse that increase”.
At the moment there’s a proposed 1p a litre rise in fuel duty planned for 1 April and Ed balls says that public anger will increase quickly if George Osborne fails to act.
Utility Exchange has reported recently that the Government was considering a fuel duty stabiliser but The Sunday Times suggests that those on the inside say this is unlikely to happen because it’s too complicated.
Ed balls said a fuel duty stabiliser was not the way to go. He said when Labour were in Government they looked at it but found there were too many problems with it including instability and strange outcomes.
Reducing VAT on fuel to 17.5% from 20% would mean the Government would lose around £700m a year but at the same time the Government is set to make £800m from the new bank levy. Ed Balls suggests that this bank levy would allow for the cut in fuel VAT.
With stability in the Middle East threatened and oil prices rising every day a strike by petrol tanker drivers and an increase in fuel duty are the last things motorists want. Rising fuel prices threaten to set back the economic recovery by not only harming families but also hitting small businesses. It remains to be seen what, if anything, the Government will do over the next few weeks. While Mr Osborne may say that he can’t do anything until the budget but Mr Balls argues that the recent bank levy was announced on Radio 4, outside of the budget so there’s no reason why Mr Osborne can’t make changes now.
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Middle East Tensions Threaten To Spread To Saudi Arabia And Push Crude Oil Prices Higher
The tensions in the Middle East have continued to push up crude oil prices with concern mounting that unrest could spread to Saudi Arabia – the world’s top oil producer.
Crude oil prices have risen 2% as concern grows that tension in the Middle East, currently affecting Libya, will spread to Saudi Arabia.
Brent Crude rose to $114.50 in early trading while U.S. light crude rose to $99.50. Now protests in Oman threaten to push up prices further and concern grows over the security of supply from both the Middle East and North Africa.
While there are protests in Oman these haven’t affected the flow of oil from the area yet. Libya has shut down production – around 850,000 barrels a day of production – about 1% of global supplies. In the meantime Saudi Arabia has increased production to plug this gap in the market.
While Oman doesn’t produce as much oil as Saudi Arabia (it produces a similar amount to Libya) it forms part of the benchmark for pricing and accounts for about 1% of global oil consumption. So if there was any disruption to supplies here it would certainly have an effect on prices.
While Saudi Arabia has increased production, stock markets in the country fell as academics and business men wrote an open letter to the king demanding reforms in the country. A Facebook campaign is calling for a “day of rage” in Saudi Arabia on 1 March with subscribers rising to 12,000 in recent days and analysts concerned that Saudi Arabia could suffer the same problems as Egypt and Libya.
As tensions mount in the Middle East, the International Energy Agency (IEA) is on standby and has said it will use emergency stockpiles if unrest in the region looks set to affect oil supplies for a “prolonged” period.
The head of the IEA’s oil and markets division, David Fyfe, said its 28 member countries had emergency reserves of 1.6 billion barrels. Mr Fyfe said if needed, they would be able to provide 2m barrels a day for the next two years.
He said, “We are very concerned that a sustained high price could become a drag on the economic recovery. If there is a serious long-term outage and producers and consumers have significant problems with supply, we will consider recommending a stock release”.
The West is keen to stabilise oil prices as soon as possible and prevent prices rising to the levels seen just over two years ago. In 2008 prices reached $150 a barrel and soon after the global economic crisis hit. This was not just down to high oil prices but the culmination of a number of factors. However, high oil prices threaten to damage global economic recovery and there are concerns that they could lead to further global recession.
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Massive Space Storm Due Could Mean Power Cuts Lasting Months
After the concerns over the effects of the solar flares which hit Earth at the end of last week, scientists have warned that the Earth is due a massive space storm which could result in power cuts lasting for months.
Scientists have warned of billions of pounds of damage which could be caused by a massive space storm which is due – in fact overdue – to affect power grids and telecommunications systems on Earth.
According to astronomers the Earth is more vulnerable than it has ever been to the effects of a solar storm.
The sun is moving into its most active phase of its 11-12 year cycle and a massive solar eruption could damage phone networks, power grids and satellite systems used to control computers and airline navigation systems. A really powerful solar storm could cause damage to electricity power grids which could mean blackouts which last weeks or even months.
Just last week solar flares reached the Earth which caused some disruption to communications and airlines had to reroute flights to ensure radio signals were not interrupted.
The government’s chief scientific adviser, Professor Sir John Beddington said “The issue of space weather has got to be taken seriously”. He said that after a quiet period of space weather we have to expect it to get worse – it’s not likely to remain quiet. However he added “the potential vulnerability of our systems has increased dramatically, whether it is the smart grid in our electricity systems or the ubiquitous use of GPS in just about everything we use these days”. He warned that a massive solar storm could cause damage which could result in a “global Katrina” and cost economies around the world as much as £1.2tn.
The next period when scientists expect the most solar activity is in 2013. But scientists warn we must be prepared.
The director of the Space Weather Prediction Centre in Colorado, Thomas Bogdan said we need to prepare for a massive solar storm. He said power companies should get ready by hardening transformers at substations and installing capacitors to soak up surges in the current.
Meanwhile the head of the U.S. National Oceanic and Atmospheric Administration, Jane Lubchenco warned “This is not a matter of if, it is simply a matter of when and how big”.
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BP Signs £4.5b Oil & Gas Deal With Indian Energy Company Reliance Industries
BP has signed a £4.5 billion deal with an Indian company which will see BP become a major player in the Indian oil and gas market.
The deal will see BP take a 30% stake in a number of oil and gas blocks operated by Reliance Industries. Some of these are offshore blocks. Reliance Industries is an energy business run by the richest man in Asia, Mukesh Ambani.
Along with shares in the operations side of the business BP will also form a 50:50 joint venture with Reliance Industries, for marketing gas in India.
At the moment the gas blocks acquired by BP produce around 1.8 billion cubic feet of gas a day – or 30% of India’s total consumption. The chairman of BP, Carl-Henrik Svanberg said that it was expected that between now and 2030 global energy consumption would increase by 40%. He added that most of this growth would come from developing markets such as India.
Talking about the deal with Reliance Industries, the chief executive of BP, Bob Dudley, said “India is one of the fastest growing economies in the world. By allying ourselves with Reliance, we will access the most prolific gas basin in india and secure a place in the fast growing Indian gas markets, creating a distinctive BP position”.
Meanwhile Mr Ambani said “We are delighted to partner with BP, one of the largest energy majors and one of the finest deep water exploration companies in the world”.
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Protests In Oil Rich Libya See Oil Prices Reach Two And A Half Year High
Continued unrest in the Middle East and in particular oil rich Libya has seen oil prices rise to their highest levels for over two years.
Libya is a key oil producing country and exports 1.1 million barrels a day and is the second biggest oil producing member of OPEC (Organisation of Oil Exporting Countries). As protests continue in Libya oil has reached a new two and a half year high.
Brent crude for April delivery rose to $104.60 a barrel while US crude for March delivery was up $2 to %88.42 a barrel. It means that we can expect these oil price rises will hit petrol and diesel prices which are already at record highs in some areas of the UK.
Some European energy companies are taking staff out of the country while the Italian oil company, ENI, said that its operations were not affected by the protests. However, shares in the oil company have fallen 4% and there must be concerns in Italy as the country is Libya’s biggest customer, buying about a third of Libya’s oil and gas.
Other oil companies including Austria’s OMV and Norway’s Statoil are removing expat staff while Shell has evacuated family members of its non Libyan employees.
Protests have reached the Libyan capital, Tripoli, as Colonel Gaddafi’s son, Saif, admitted that Libya’s second city Benghazi was now controlled by protesters. He warned that the protests could lead to civil war and said that his father would fight to remain in power.
Meanwhile there have been threats by the head of the Al-Suwayya tribe in eastern Libya that they will cut off oil exports if the authorities don’t end the “oppression of protesters”.
As tensions escalate in Libya, protests are continuing in Bahrain and concerns remain that the unrest could spread throughout the Middle East – and even reach Saudi Arabia. Experts add that prices could increase by at least another $10 if the protests continue.
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European Petrol Prices Fall In January By 4.4% But UK Prices Rise By 1.18%
Utility Exchange has been reporting on rising oil and fuel costs over recent weeks and now new research has revealed that petrol prices in Europe actually fell 4.4% in January while UK prices rose by 1.18%.
The AA research reveals that petrol prices in Europe fell in January as wholesale petrol costs fell. It resulted in average European petrol prices of 121p a litre compared with an average British price of 129p a litre.
The AA blames retailers for not passing on the fall in wholesale petrol costs. Even now, as wholesale prices start to rise again prices in Europe are still 3% lower than the UK.
The AA praised Asda for having a national pricing policy whereby all Asda petrol stations charge the same no matter where they are in the country. At the same time the AA is critical of other supermarkets which it says operate a “charging lottery”. In such circumstances, prices can vary by as much as 4p a litre in neighbouring towns.
The president of the AA, Edmund King, said European fuel retailers had “passed on much of the wholesale petrol price reduction”. He also asked the Government to drop the fuel duty increase which is due on 1 April.
The UK has the most expensive petrol in Europe with an average price of 128.86p a litre with Spain having the cheapest petrol – 106.76p a litre. The higher UK fuel prices are hitting businesses hard and come at a time when many are struggling to make ends meet.
Speaking from RMI Petrol, an organisation which represents independent filling stations, Brian Madderson says retailers are not profiteering. He said “Attempts to deflect the impact of relentless Government tax hikes by suggesting that retailers are profiteering are ludicrous and unhelpful to an industry sector struggling to preserve jobs especially in the challenged rural communities”.
High profile campaigns are now being mounted to protest about the cost of fuel and the public face of the campaign, Quentin Wilson said “The increasing cost of fuel is strangling the economy, stoking up inflation and really hurting businesses and the public”.
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Middle East Tensions See Oil Prices Rise To Over $104 A Barrel
Utility Exchange has been reporting for a while on the increasing oil prices and it seems the ongoing tensions in the Middle East have pushed the price of oil to a two and a half year high.
There are concerns that tensions in the Middle East will result in the oil flow from the area being disrupted and lead to further rises in the price of oil.
Late on Wednesday, Brent crude rose to over $104 a barrel after there were reports that Iranian warships were planning to sail through the Suez Canal and head towards Syria.
It’s not just concerns over an increase in tensions between Israel and Iran that is threatening to push up the price of oil but there are now protests in Bahrain and Libya – both oil rich countries.
Oil traders are worried that similar protests to those that brought down the Egyptian President, could spread across all of the oil producing nations and seriously disrupt oil supplies.
An oil trader with Sucden Financial, Rob Montefusco, said “Troubles in the Middle East are back on the agenda, protests in Bahrain and Saudi have drummed up political tension”.
The Israeli foreign minister, Avigdor Lieberman, said the move by Iran to send warships through the Suez Canal was “provocation” and it was something that Israel regarded as threatening behaviour because of Iran’s nuclear arms programme.
Despite Israeli concerns, the Suez Canal Authority said there had been a cancellation of two scheduled trips of two Iranian warships”. A canal official said that a new date had not been set to use the canal.
It’s tensions such as these which threaten to increase the price of oil. Until January this year oil had been below $100 a barrel for sometime but the protests in Egypt resulted in oil prices rising above the $100 mark.