The Oil Price Rollercoaster

This year has without a doubt, seen the most volitile oil prices for several decades.  After reaching new record high prices earlier this spring, we close the year with one of the lowest oil prices for many years.

The question that springs to mind is why the price went so high in the first place.

Traditional Economics states that the markets set a price at the point where supply equals demand, if supply falls or demand increases then the price rises, and vice versa.

So what really happened in the early summer of this year, what were the real true physical factors driving the price increases, or was it purely an example of investor speculation.

It we get back in out time machines and travel back a year, then what the forecasters saw for oil consumption was a continued growing demand, both nothing particularly out of the ordinary.

What really happened in 2008? 

There were no invasions of oil producing countries, China continued at the begining of the year to increase it’s demand, but again, nothing that wasn’t particularly unforseeable, the US dollar was strong, but again, it had been for most of the year before.  There was continued political and military uncertainty in Nigeria, but again, nothing drastically different from that of previous years, or what was anticipated.

 All in all, in was expected that global oil production would increase by 2% to cope with 2008’s anticipated demand.

So, if we take the hard and fast, true physical reasons for oil price volatility, with hindsight, there doesn’t seem to be a great deal there.  Which leaves us with the intangilbe reasons, the suspicions & worries of the analysts, and the financial market traders, the doom & gloom dramatic predictions of the world’s media, desperate to find something to grab headlines and viewers, and then speculators, the forward traders & the short traders who place their bets and see where the dice fall.

Hindsight is a wonderfull thing, but sitting here at the end of a turbulent year, I really wonder just how much of the whole “oil crisis” was down to speculators making money, and how long the rest of the world will be paying for it.

DHL Ceo says Retail Companies are in de-stocking panic

John Mullen, the CEO of DHL, in an interview with the Times, likened the High Street Retail Stores panic destocking as the equivalent to a run on the banks.

A quick walk around the High Street will tell you that they have all given way.  And that even the hardest nosed of the retailers, those that target the upper end of the market and resist the urge to cut prices before Christmas, are now brandishing “20% off everything” signs all over their stores.

Even the ultimate January Sale – Harrods,  are going early this this year.  Harrolds, who have never in their history started their January Sales until the first working day after the new year, start their Sale on December 27th, as well has having 30% off various departments and seasonal reductions already.

The retailers seem to be dumping stocks as quickly as possible, in fear that there will simply be no future demand by shoppers, (even those companies who are generating profits and whose books are sound) and this creates the risk that this has become a self fullfilling prophesy. 

We saw in the last weeks of November and the First week of December a standoff between the retailers and the shoppers.  Retailers were holding off cutting prices in the hope that the shoppers would start buying, and the shoppers were holding off waiting for the retailers to drop the prices.  The shoppers won, and now all retailers are dropping prices further and further desperate to grab a bit of that Christmas spend.

The problem with such a large reduction in inventory levels is that it is likely to hinder the recovery, which will eventually come.  When companies have low invetory levels it prevents them from reacting quickly and flexibly to any upswing in demand.

Joined up thinking for the UK’s Roads.

The last couple of weeks have seen some significant announcements regarding the UK’s road network.  And the interesting thing is that many of them seem contradictory, making it clear that the UK seems to have no clear direction as far as road strategy is concerned.

• At the beginning of December the Dartford Toll crossing saw increases in charges during the daytime, with nighttime crossings, and crossing for locals made free.  The reasoning being to move traffic form the busier daytime into the quieter nighttime.
• Last Week, Manchester’s population voted 4-1 against the introduction of a Manchester Congestion Charge, which would have seen £1.5bn invested into alternative public transport.
• Boris Johnson announced that he was abandoning the controversial western extension to the London Congestion zone, and giving everyone a Christmas free of
• The M6 Toll road announced daytime road toll increases, with weekend and evening prices to remain unchanged. 
• And at the same time announces that there is a 12% drop in usage, based on the weakening UK economy.charging.

This week also saw the Scottish Executive put forward plans for a new second Forth Road Crossing, which is according to experts, insufficient to cope with the current traffic levels, and abandon plans for a rail link between Glasgow City Centre & Glasgow Airports.

It seems that the UK is suffering a panic attack when it comes to how we should use the roads. 

The politicians and the government favour congestion charging and effectively road rationing, forcing people out of their cars by making it prohibitively expensive.

The problem with this though, is that there are no alternatives.  And so the voting public stamp their feet and reject strongly all road pricing policies.

It’s a classic chicken and egg situation.  Governments & Councils are relying on the money from the congestion charge to fund the improvements in public transport.  And it doesn’t work that way.  The public and haulage/delivery industries need a viable method of travelling now, not in 5 years time when enough tolls have been paid to pay for some new trams.

Edinburgh is a city in traffic Chaos.  The residents voted against congestion charging back in 2005, and the tram works are currently substantially behind and substantially over budget, a tram network seems to have degenerated into a tram line.  And the road works and closure associated with this are bringing the city’s roads to a standstill.

Part of the problem is that Roads is a local government issue, which is why we see the big cities trying to persuade the public to vote for road charging, whilst the government quietly offers bribes to the councils in the background.

But our roads, by definition, are a national network, and therefore it would make sense for the problem of congestion and road usage to be addresses nationally, as one policy, instead of what we see here which is a bottleneck by bottleneck approach.  However such an approach, although sensible, will require a brave body to take it on.  Part of the reason that Scotland faces such a crisis point with the Second Forth Crossing is because no government, Westminster or Hoolyrood, have been prepared to face head on the contradictory demands of the local activists, the environmentalists and local authority politics.

I think that the changes to the Dartford tolls summarise the UK’s attitude towards road usage and charging simply and perfectly.  Increase the charges for other people to pay, but keep the local votes on side with a special freebie for locals.

The Road charging argument looks set to become the biggest example of nimby-ism that we’ve seen for a long long time.

Business Education Needs to be More Inspiring

An Offsted report published this month describes “too much” of secondary school business education as “uninspiring”

Offsted based their report on the inspection of 118 secondary schools between 2004 and 2007.    The report shows that there are widely different methods used for teaching economics and business studies, and that these achieved widely differing results.

Characteristics of the weaker lessons included too much talk by teachers, closed questions and the overdependence on worksheets.  An recurring theme throughout the report was that there was too much emphasis on the descriptive work, and not enough on evaluation and analysis.

The report also raises the issue that students are sometimes disappointed by the lack of pratical aspects to the courses, and specifically mention not enough, if any, time spent with local employers and businesses.

We, at Fantasy Couriers,  believe that Economics and Business studies has the potential to be one of the most engaging and interesting methods of teaching students.  Business studies courses and activities give students the opportunity to take skills that they have learnt from other subjects and to apply them in a practical environment.

For example, algebra and equations make for some pretty dry maths lessons. Students are frequently unable to properly grap the principles behind algebra because its a concept.

But if you take that concept, and drop into an environment that the student can understand and internalise, then suddenly principles stop being concepts and start becoming tools.

For example get students to apply the concepts of algebra to work out a cost price for a product, or a break even sales level.  How many units do you need to sell at what price….., is a much better springboard for discussion, involvement and understanding than “if a+b=c and d+e=f , then….”

 

Finance and Business is the most common post school application of maths and numeracy for most people, with the exception obviously of those who develop the skills further into higher education, and the sciences.    So why wait until children leave school for them to discover this, lets teach them to apply their knowledge, and how to use it everyday in a practical way.

Discussions here centre on the use of Maths, but this could be equally applied to many other cirriculumn areas.  For example Art & Design, there are a small percentage of people that are able to use their Art & Design skills to build careers in Art, Architecture, Fashion and the literay world.  But a far larger percentage will use their Art & Design skills in a busines environment.  Designing websites, advertising & marketing materials, business documentation, manuals etc.

We at Fantasy Couriers believe that we should not think of Business Studies as a subject on the curriculum, it is instead a vehicle which can take the theoretical learnings of other subjects and show how these subjects have a real practical and modern relevance to everyday society, and our economy and world as a whole.

Business is the thing that keeps the world turning, and the current economic crisis has demonstrated clearly to everyone that business in America affects household happiness in the UK, and it is vital that we teach our young people to understand this.

A full version of the Offsted report can be found here.

Dear Alistair Darling – Please Cut Fuel Duty by 10p in Tomorrow’s Pre Budget Report

Newspapers, Journalists, Web, TV and all other media writers are currently preoccupied by what Alistair Darling is going to announce tomorrow in his Pre Budget Report.  The consensus is that it will be a spending led budget, looking to increase public spending, domestic spending and business spending, in the hope the kick start the UK Economy.

The policies & changes need to be about putting money back into the pockets of the people and businesses who are most likely to spend it.  This is a particular necessity given that the multi million pounds given to the banks for the same reason has just resulted in them putting the funds back into their coffers to protect them from the next rainy day.

So we have one policy suggestion for Alistair Darling that will help people on low incomes, help the ordinary hardworking family, help small businesses and help UK industry in general.

Fuel Duty Cut by 10p per Litre.

Although this would be contrary to the Environmental lobbying surrounding the Transport Industry, it could be one of the most cohesive and across the board positive policies to help the UK fight the recession and the credit crunch.

• A Cut in fuel duty would increase the pounds in the pocket for most UK families.  And it’s not a policy that disproportionately favours the higher earners.  For lower earners fuel takes up a proportionately larger part of the household income, so this is a fair and equitable way to cut taxes.
• It would reduce one of the larger costs of most UK small businesses.
• The costs of Deliveries would be cheaper, the fuel surcharges levied by most parcel carriers could be reduced.
• The “Carriage” and “delivery” costs represent up to 40% of the retail price of many items sold in the shops.  Cutting fuel prices will work through to cheaper costs all round.
• Particularly with regard to British grown and produced food, where fuel costs are a large part of the costs of production.
• Industries such as the Road Haulage Industry, the Light Goods carriers, couriers, parcel carriers, taxi companies will all see an immediate impact, and as “middlemen” this all gets passed on up the chain all the way to the consumers.

And most important of all – the “feel good factor”.

Don’t underestimate the importance of the feel good factor, the last thing that office workers need when they leave their offices late at night is an absence of Taxi Drivers, and a reduced bus service timetable.  The last thing Christmas shoppers need is a reason not to drive into town to buy presents. 

 

Cutting Fuel Duty is simply a refund for the overpayment we made during the summer.

In the Spring & Summer months, UK households and businesses paid massive amounts of additional fuel duty, spurred on by the % based levies on rapidly increasing oil costs.

Cutting fuel duty now would be a simple reimbursement of the additional amounts that we overpaid during the summer months. 

 

Environmental v Economic Arguments

The environmentalists may argue that such a drastic cut in fuel duty could cause massive detriment to achieving the carbon emission reductions that have been targeted.  Our argument though would be that there should be a whole policy & strategy in place to achieve reduced emmissions, and a reliance upon fuel duty as a big stick to hit motorist with isn’t a strategy.

The recession and the credit crunch have shown both UK businesses and households just how easy it is to incorporate energy saving methods into their daily lives.  This doesn’t need to change simply because the cost of fuel has gone down.  Instead it should be demonstrated that if people carrying using the alternative transport methods, wiser car buying, and other fuel saving techniques then this gives them the opportunity for the fuel duty cut to put real cash in their pockets.

So….

 

Dear Alistair Darling,

We as ordinary households, owners and employees of the UK’s small businesses, are writing to you to urge a 10p cut in fuel duty, for the purposes of helping low income households, and small businesses that are trying hard to continue business during these testing economic circumstances………….

(Image from www.taxthefish.com)