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Thursday, September 1, 2022

Let's Blame the Oil Companies, Zombie UK Government, Why raise interest rates? and Rest In Peace Mikhael Gorbachev

Let's Blame the Oil Companies

It used to be about 'Banker Bashing' but now it's 'Oil Company Bashing'. It seems that, at least in the UK, anyone making good money needs to be demonised. With the very high oil and gas prices we have had this year, we need to find someone to blame and that's the oil companies. Personally I blame Putin but I'm not the one who makes up the stories.

Thanks to companies like Shell and BP, we have a good supplies of fuel

Let's look at some facts about Shell, an Oil Company (courtesy of Sky News):

  • Shell, which reported adjusted earnings - the industry's preferred measure - of $11.5bn for the three months to the end of June, deals in global commodities. The prices of these are set globally by the forces of supply and demand, and the fortunes of businesses like Shell rise or fall on that basis.
  • The company accordingly made a loss of nearly $20bn in 2020 when the oil price collapsed at the height of the pandemic.
  • Shell's job is to produce oil and gas as safely and cost-effectively as it can, increasingly as sustainably as it can, before turning them into refined products and distributing them to consumers. That requires vast sums of capital - and a fair proportion of the earnings Shell has reported today will be recycled into such activities.
  • Shell's capital expenditure in the latest three months was $7bn and it was $5.1bn in the three months before that. It will be the same for the rest of the year: Shell said this morning that capital expenditure for the whole of 2022 will be between $23-$27bn.
  • One reason why oil and gas prices have been at elevated levels this year is that, as the west has foresworn Russian crude in response to Vladimir Putin's invasion of Ukraine, there is less of it available elsewhere.
  • Accordingly, it is important that companies like Shell continue to make a profit, in order to invest to that extent in future -and providing an element of energy security. It also needs to carry on recycling its profits into the transition to net zero that people and governments around the world are demanding.
  • Mr van Beurden (Shell's CEO) noted: "We are using our financial strength to invest in secure energy supplies which the world needs today, taking real, bold steps to cut carbon emissions, and transforming our company for a low-carbon energy future."
  • Ah, say critics, but isn't Shell profiteering on the backs of hard-pressed households and motorists? In a word, no. UK consumers account for a negligible part of Shell's overall global profitability. The main reason petrol prices are at the level they are in the UK is because of government taxation.
Angry about high energy prices? I suggest you direct your attention to the government who could cut VAT on electricity, gas and petrol overnight. You could also ask Putin to stop the war in Ukraine. Good luck with that!

Zombie UK Government

"Downing Street has admitted that Boris Johnson will not be working on his holiday unless he is needed urgently, after he faced criticism for taking a second break abroad within three weeks amid the energy crisis.

Johnson is believed to be in Greece with his family, despite having just three weeks left in the job amid accusations he is leading a “zombie” government." The Guardian August 15th 2022

So Johnson plays abroad while the UK burns. Literally:
  1. Drought, wildfires, hosepipe bans
  2. War in Ukraine leading to widespread economic problems affecting the UK
  3. Inflation rising to 18%+ the highest rate in over 40 years, higher that EU, US, etc.
  4. Major cost of living crisis triggered by a quadrupling of household energy costs and food price inflation
  5. Bank of England forecasts protracted recession and the biggest drop in living standards in decades
  6. Regular rail strikes with very few trains running nationally, Royal Mail strike and others
  7. Major staffing shortages in agriculture, hospitality and other lower paid sectors
  8. Increase in illegal immigration
Honestly, our current leaders do not deserve to be paid, let alone stay in power! All we hear is the rivalry between Liz Truss (the favourite) and Rishi Sunak, one of whom the Conservative Party will declare the new Prime Minister on September 5th. 

The new Tory choice of leader is likely to lead to a Labour election victory for Sir Keir Starmer

Why raise interest rates Mr Bank of England?

"Once upon a time, doctors would bleed patients who were in poor health as a cure. We now know this was not a good idea, and yet the Bank of England keeps raising its base rate while predicting a prolonged recession" The Guardian 7th August 2022.

I agree with the Guardian - I can't understand why central banks across the Western world think that if they raise the cost of lending it is somehow going to solve the external and largely war related problems of high energy prices and ease pandemic related supply issues. For sure, if everyone stops spending and we go into a really serious recession, inflation will fall. But does anyone want that?

Source: Office for National Statistics (ONS)

Current soaring inflation is due largely to the fast rise of energy prices over the last year, exacerbated by supply constraints following the pandemic and cost rises caused by Brexit (e.g. labour shortages, increased paperwork, transport delays, etc.). Please would somebody explain to me how it is that the government and the Bank of England believe that hiking interest rates (i.e. increasing mortgage payments for consumers and increasing the cost of loans for business) is going to solve the problem rather than make it worse? 

Rest In Peace Mikhael Gorbachev

Mikhael Gorbachev (1931- August 30th 2022) was the last leader of the Soviet Union.
He will be remembered with affection as one of the most influential leaders of the 20th century.
Unfortunately his great legacy of perestroika and glasnost is being largely destroyed by Vladimir Putin.

“He will forever be remembered as the last leader of the Soviet Union who had the courage and conviction to end the cold war.” Sir Keir Starmer

Quote for the Month

As I reach my 60th year, I feel we should redefine the meaning of old as follows:

0 to 60 = Young
60 to 85 = Middle Aged
85 to 100 = Old
100+ = Probably Dead

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