News Column

Oil price resilient in face of turmoil

August 17, 2014

By Jon Rees, Financial Mail on Sunday, London



Aug. 17--Time was that any sign of a crisis in the Middle East and the price of oil went through the roof and with it the chances of future prosperity. Not any more.

A barrel of Brent crude is actually cheaper now than it was three months ago at $102 (pounds sterling 61) compared with $113. Even the sheer horror of the lightning-fast spread of the Islamic State in Iraq towards the oil-rich Kurdistan region, slaughtering as they go, has not seen prices soar.

Why? Because nowadays the West is not so dependent on the Middle East's oil as it used to be. The US imports as much oil from Canada as it does from all of the major oil producers in the Middle East.

And thanks to shale oil, US oil production has actually surpassed imports for the first time in 20 years.

Every regime tends to want to keep the oil flowing to make sure the money keeps rolling in. Libya's main oil terminal has just re-opened after a year out of action and Vladimir Putin needs Western cash as much if not more than we need Russian oil.

British petrol retailers are responding with the average price of a litre of unleaded down nearly 6 per cent to 130p on the year.

Brian Madderson, chairman of the Petrol Retailers' Association, believes prices will not rise much anytime soon. Oil is weathering the gathering storm well, which is good news for all of us.

IT'S hard to tell if Mark Carney is a glass half full kind of fellow or not. As the governor of the Bank of England sipped his water last week announcing the Bank's quarterly inflation report, the signals on future interest rate rises were a little mixed. Inflation should stay at about 2 per cent over the next two or three years, as long as interest rates rise as expected by the markets.

But, as he drained his glass, Carney also indicated that weak wage growth could push back the first rise in interest rates from their historic low of 0.5 per cent.

He believes that the economy is further from its full potential than the strong figures on falling unemployment and rising output imply.

However, it was Carney's comments in June at the Mansion House which the market took to imply rate rises coming sooner rather than later that made sterling soar.

At the time the Bank was predicting that wages would pick up along with the economy. But now Carney suggests that wages will rise by just 1.25 per cent this year, compared with the 2.5 per cent he was predicting just a few short weeks ago.

Nevertheless, Carney's caution is well-founded as a quick look across the Channel to the parlous eurozone will testify.

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(c)2014 Daily Mail (London, )

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Source: Daily Mail (London, England)


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