Comment: Oil price slip would offer respite in tough times

LET’S HOPE Shell chief executive Peter Voser’s prediction that oil prices will ease later this year from their near $100-a-barrel levels proves to be more than whistling in the dark.

The world macro economy – and particularly Europe’s – needs all the booster rockets it can get amid the stream of negative data currently coming out.

Latest numbers out yesterday showed that eurozone consumers spent much less in the shops in April than even the bleak picture that had been forecast. A separate purchasing managers’ index (PMI) report showed the private economy in the single currency zone contracted at the fastest pace in nearly three years in May.

Meanwhile, the likes of Greece and Spain have youth unemployment rates of between 40 and 50 per cent, while other data shows Germany’s service sector expanded last month at its lowest rate in six months.

And the eurozone’s third and fourth biggest economies, Italy and Spain respectively, are paying a punishing 6 per cent and 7 per cent on their sovereign debt. This vastly reduces those countries’ abilities to get their economies going again through public infrastructure works.

Taken in the round, it looks dismal. Hence our need to grasp at any silver lining, and Voser’s forecasts on oil.

Logically, the Shell boss is talking sense. When the global economy weakens, demand for oil falls, and so the price falls.

Looking at the weak data (apart from China’s economic strength, America’s gradual recovery, and some emerging market resilience) there looks little reason that economic growth should recover strongly in the second half of this year to keep the oil price on a high.

Stabilisation of the eurozone and the wider economy look the best outlook possible. In this context, Voser is right to say energy prices should head south.

Geopolitical elements of price volatility, primarily the West’s standoff with Iran, have also eased in the past month or so, and that should be an additional factor keeping a lid on oil prices.

However, Iran is a maverick state. It is impossible to second-guess whether the brinkmanship with the West will spiral out of control again, particularly with Israel nervous on the issue and a pre-emptive military strike on Iran’s nuclear installations impossible to rule out.

Voser reckons that oil demand will pick up again gradually in 2013, and with it the oil price. But, particularly in the UK and Europe, virtually no economists are forecasting any strong recovery next year; any return to higher oil prices in 2013 is only likely to be by incremental movements.

From manufacturers to transport groups, from pub businesses to chemicals producers, right down to consumers’ utility bills, we need a lower oil price at least for the next couple of years. Let’s pray that the Shell chief is right that some respite is in the pipeline.

All are equal, but some are more equal than others…

“WE’RE all in this austerity thing together? Pull the other one!”

That would be the understandably cynical response of many ordinary people on seeing that average pay and cash bonuses for FTSE 100 finance directors cantered past the £1 million milestone in 2011.

A 9.5 per cent rise in pay and bonuses (not including “delayed-fuse” share bonuses) pushed the finance directors into this desirable nirvana of readies, a rate more than double the average level of inflation last year. When corporates get lambasted for boardroom largesse, particularly in these straitened times, they have only themselves to blame – although my guess is they don’t blame anyone, they just shrug and bank the money.

And the pay freezes and inflation-linked rises that ordinary people have had to get used to? These seemingly just don’t apply to blue-chip boardrooms – and this is an apparently insurmountable problem for David Cameron as he tries to convince the wider population we are all rowing against strong headwinds in the same austerity boat. Not when we see business cruisers cleaving smoothly past us towards the far shore, we’re not.

…And not every year must be just like the last time

I WAS talking to yet another City analyst recently (pub sector this time) who said the dead-eyed fixation on like-for-like sales has got completely out of hand.

Every time a high street player puts out results, the spotlight often sweeps straight past total sales and profitability to like-for-like revenues, as if squeezing more sales out of the same floorspace is the only game in town, he claims.

I have a lot of sympathy with his view. Like-for-likes are a blunt instrument, as the better the previous year’s figures the more difficult it is to improve on.

By contrast, total sales and profitability take in boardroom vision and expansion. They are a better touchstone for a company’s underlying momentum and prospects.