Oil

Chancellor Kwasi Kwarteng – keen to sharpen the City’s competitive edge, we’re told – wants to remove the legislative cap, imported from Brussels in 2014, that limits bankers’ bonuses to 100 per cent of their base salary, or up to 200 per cent with shareholder approval. That raises interesting questions. Was the cap a good idea in the first place? If not, why wasn’t it binned as soon as we left the EU? Is now the ideal moment to do so? And are bankers still a breed of greedy bastards? The answer to the first question is certainly not. This column called the cap a ‘boneheaded’ measure that would merely provoke wily moneymen to find ways of gaming an unwelcome restraint on their wealth.

How outraged should we be that Saudi Aramco has reported a world-record quarterly profit of $48 billion, representing a giant bonus from the global oil price spike provoked by the war in Ukraine? Well, that’s how the cookie crumbles when you’re sitting on oil reserves so abundant and so easily accessible that your marginal cost of producing the next barrel is less than $10 when the market price has just doubled to $130 — as it did in March, before settling back to around $95 today. And you might think that this recent price retreat is likely to continue as oil demand begins to shrink with the onset of recession in developed economies – just as you worry that your own reserves will one day dwindle.

How outraged should we be that Saudi Aramco has reported a world-record quarterly profit of $48 billion, representing a giant bonus from the global oil price spike provoked by the war in Ukraine? Well, that’s how the cookie crumbles when you’re sitting on oil reserves so abundant and so easily accessible that your marginal cost of producing the next barrel is less than $10 when the market price has just doubled to $130 – as it did in March, before settling back to around $95 today. And you might think that this recent price retreat is likely to continue as oil demand begins to shrink with the onset of recession in developed economies – just as you worry that your own reserves will one day dwindle.

It will drain Vladimir Putin of funds for his war machine. It will bring down inflation. And it might even be enough to stop the global economy from tipping into recession. As President Macron put forward his wheeze for solving the energy crisis this week, he no doubt had plenty of persuasive arguments. He appears to have brought the rest of the G7 on board for his plan for a global cap on the price of oil. There is just one problem. Like most price controls, it is not going to work. Indeed. It will only make the crisis worse. Of course, everyone can see where Macron is coming from. Ever since Russia invaded Ukraine, and embargos started to be placed on its energy, the price of oil has soared. From $74 a year ago it has risen to $117 a barrel and could go a lot higher still.

Stock markets are tumbling, but given the tide of economic news, that’s hardly surprising. The S&P 500 index dived into bear market territory – 20 per cent down since January – after a rise in US inflation for May. Our own FTSE indices reacted badly to an unexpected 0.3 per cent drop in UK GDP for April. Interest rate rises predicted on both sides of the pond this week will make investors jumpier still. So expect further falls in markets that have been driven by weight of cheap money to stay unnaturally high despite an increasingly bleak backdrop. And wait for the turn. When might that be? When investors think they can see beyond the inflation spike and pick value among depressed stocks.

After the Jubilee dream of a lovely lost Britain, back to reality with a face-slap: the reality of the £8 pint of beer, the £8-plus gallon of diesel and the death throes of a Downing Street regime that has no discernible answers to the cost-of-living crisis. All of which takes me back to some questions I’ve been pondering for a while: whether the UK faces higher inflation and a deeper downturn than the rest of the western world, if so why, and who we should blame. By way of caveat, let’s recall the shifting pattern of Covid statistics over time: just because the UK topped April’s G7 inflation table – at 9 per cent, ahead of 8.3 per cent in the US and 7.4 per cent in Germany – doesn’t mean we’ll still look worst when this is all over.

BP’s ‘underlying’ first-quarter profit of $6.2 billion, compared with $2.6 billion in the first quarter of 2021, was a direct reflection of the surge in global energy prices. Coming 48 hours before polling day, it also looked like a gift-wrapped on-time delivery for Sir Keir Starmer and his claim that a windfall tax on ‘excess’ profits of North Sea oil and gas extractors would knock £600 off the energy bills of ‘those who need it most’. Perhaps anticipating the BP announcement, Rishi Sunak last week seemed to trim his opposition to a windfall tax, telling Mumsnet ‘of course that’s something I would look at’ if energy companies fail to invest in the right sort of projects.