TODAY’S FAYRE – Tuesday 24th March 2015
“Between us now and here –
Two thrown together
Who are not wont to wear
Life’s flushest feather –
Who see the scenes slide past,
The daytimes dimming fast,
Let there be truth at last,
Even if despair.
So thoroughly and long
Have you now known me,
So real in faith and strong
Have I now shown me,
That nothing needs disguise
Further in any wise,
Or asks or justifies
A guarded tongue.
Face unto face, then, say,
Eyes mine own meeting,
Is your heart far away,
Or with mine beating?
When false things are brought low,
And swift things have grown slow,
Feigning like froth shall go,
Faith be for aye.”
Thomas Hardy – poet & author – 1840-1928
David Cameron announces he will not stand for a third term. Was that a strategically a good time to make such an announcement? The Spectator’s Fraser Nelson makes salient comments http://blogs.spectator.co.uk/coffeehouse/2015/03/david-cameron-this-will-be-my-last-election-theresa-george-or-boris-could-succeed-me/
It’s rare but every now and again you come across a person who knows his subject inside out! Yesterday I met such a person and his subject was oil, gas and energy. What he did not know about everything from exploration to distribution and most important of all the politics of energy both globally and domestically probably was not worth knowing.
Firstly he terrified me by telling me that Ed Miliband’s policy of freezing energy prices and dispensing with carbon emissions by 2030 would actually end up costing each family about £1500 a year on top of what they already pay. Renewables are a totally unrealistic alternative. Until recently, when George Osborne called for an audit of decarbonising energy, no such audit has ever taken place. Going ‘Green’ or the ‘renewable route’ has been conservatively estimated to cost £500 billion. That policy is nothing more than daylight robbery of the taxpayer. Wind mills are not only a blight on the landscape they are also hopelessly expensive. However off-shore windmills have some future. Coal is still responsible for about 30% of energy and gas for 40% of energy. Contrary to public perception, neither the government nor the opposition will countenance using gas to its full capacity, which is relatively cheap, though not in synch with the ‘sandal/designer stubble brigade’ way of thinking, it is also clean! Whatever anyone says the jury is still out over ‘climate change!’ In passing the UK is not remotely reliant on Russia for its gas. 40% of our imported gas comes from the friendliest of nations – Norway!
The Department of Energy was always held in very high regard until Tony Blair, in his infinite wisdom and majesty, decided to trash it, by changing its culture in to a climate change think tank, utterly condemning the massive importance of oil to the future of world growth almost into ignominy!!
Now to oil! Let’s start with some basic data. In 1985, 4.8 million barrels were produced in a day at $9 each! At that time Asia was a negligible user; Asia and China are of pre-requisite importance! Today 93 million are produced, the price having dropped from $115 to circa $50 a barrel. The North Sea has dropped from 3 million to 1.5 million a day. Investment in North Sea oil has collapsed and at the current level of production it is unlikely that exploration will increase, despite tax cuts imposed by government. Successive global governments have dangerously milked this most important of all resources.
There is no doubt that Saudi Arabia, Qatar, Kuwait and the UAE have manipulated the price of oil down in response to the US bragging about its shale based production head to towards self-sufficiency. Needless to say Russia is suffering from oil having dropped to savagely as well as fall-out from sanctions. When the Middle East (SA) has made its point, crude oil is likely to rise in price probably back to $75 a barrel in a year! The demand for oil has not dropped that much; this is lethal politics at its most virulent. There is little doubt that the violent movement in oil prices between 2007 and 2010 contributed every bit as much to the recession as did sub-prime lending, banks and the credit crisis. Government needs to understand that fact. I am astonished that Ed Davey, the opposition do not want to listen to the facts surrounding the future of the oil and energy sectors, just concentrating their efforts to get re-elected with popular policies. It is also becoming clear that the US is increasingly becoming isolationist in its outlook, looking for its own economy and the FED to over influence world opinion. As far as the US is concerned, it has done its best to trash BP, HSBC, Standard Chartered, BAE Systems etc. Best friends? I have my doubts!
Yesterday mining stocks and a good feeling enabled the FTSE 100 to consolidate above the 7k threshold. New York seemed to be suffering from inertia with the 3 main indices closing just below the Plimsoll line. In Asia this morning the worst HSBC PMI data for 11 months emanated from China, which took some gilt off the ginger-bread! FTSE 100 was up 5 points at 7045 at 9.15am. Wolseley and AG Barr posted decent numbers but profit takers were initially in the ring. All the old random favourites have popped their heads above the parapet – Diageo, Reckitt Benckiser, Unilever etc to the fore!
Next week’s UK results – Wednesday – JOHNSTON PRESS, JOHN LAING, CARD FACTORY, BALFOUR BEATTY, BELLWAY, BOWLEVEN, UNITED UTILITIES, TOPPS TILES – Thursday – AMEC, SIGNET, LAURA ASHLRY, easyJET, Friday – HOMESERVE
David Buik – market commentator
Panmure Gordon & Co