Sky News business editor Michael Wilson

Stellar profits from big oil, and the first £5 gallon at the pumps. A leading politician rushes to the trouble at the Grangemouth refinery, and OPEC’s president warns oil could reach $200 a barrel. Troubling times.

However much the huge profits from Shell and BP rankle and rub salt in the wounds of everyone smarting from their hugely increased fuel bills, both the oil giants are only doing what they are supposed to do, maximise profits for their shareholders. It’s getting harder to get oil out of the ground, and more of the territory where they drill is getting increasingly hostile, physically and politically.

The oil markets are febrile, not just because of supply problems but because foreign investors are getting out of the weak dollar and into oil related assets. A leading investment bank thinks that hot money accounts for $30 of the present barrel price.

But even if this present price is just a bubble, it shows no signs of bursting. Stock of crude are low and OPEC shows no inclination to step in to help.

However, oil is as much subject to supply and demand as any other commodity. Americans are now using less petrol, as they’re hurt by the squeeze of the credit crunch. Neither the dollar or the markets will remain weak forever, and if the hot money retreats from oil, the price could fall as demand falls and oil crude looks less attractive as an investment.

I wouldn’t hold your breath, though. After the credit crunch heals, as it surely will, we now face an even bigger problem – the inflationary shock from the soaring energy prices. And we haven’t even talked about food prices yet, have we?

Comments

[Rick, Sweden 30 Apr 2008 08:21:35]

For A long time now, Shell, BP and the other oil companies have kept telling us that the price of fuel at the pumps is set by the price of oil. "Its not us - blame OPEC". The Oil Giants keep on saying that the cost of their raw material, crude Oil, is increasing and they are just putting up the price at the pump to offset the increase in price of crude that they are paying.
If this was true then the profits made by Shell, BP and others would not have gone up by as much as they have. In a simple calculation, if your cost of production go up by 20% you increase the selling price of your end product by 20% + the rate of inflation + a bit extra for the shareholders dividends. This can never equate to a 48% jump in the profit margin.
What I suspect the oil companies have been doing is selling fuel at the pumps at a Sterling price calculated at Dollar exchange rate that gives them a windfall profit. They have made money by ripping off the motorists by not passing on the savings in the exchange rate.

[Josef Jurkiewicz USA 30 Apr 2008 04:54:13]

So the shareholders have a right to make money at whatever the cost, where in the book of life that says it is ok to make billions while the average bloke on the street is suffering. The Pyramids were built so that the kings could take it with them when they died. It seems to me the only one that have gained from that was the thieves who boke in. Fast foreward to to-day the oil shareholders are acting the same, I think enough is enough It is time something drastic is done to put an end to this greed. thanks josef

[pete brighton 29 Apr 2008 17:33:37]

Oh dear.... I think we have just nose dived into an unbelieveable mess. The media have been attacking the housing market so much that it has collapsed. Demand for homes is zero becasue the media have told everyone its going to crash. So in effect they have caused it to do so. The same will happen not only to the rest of the uk economy but becassue no body will be able to afford to drive thier cars and the demand for oil based products will dramatically decrease the oil price will fall significantly very soon. People are making vast sums by speculating on markets all over the world and unfortunately it is the ordinary prson that is going to suffer. The media lead us all off the cliff sooner or later. Good bye consumer economy hello breadline and poverty economy. Its all falling apart.

[Khalid 29 Apr 2008 13:37:16]

Sir
As with every product or commodity, supply and demand plays much havoc with the minds of those whose reliance upon such supplies are restricted no matter what the demand.
Oil, has been exploited to an extent that evereyday life objects, unless made out of stone, have a slimey ingrediant, albeit hidden from view.
Thus far as petrol consumption within the US, and the lowering of such reliance, perhaps the UK needs to learn a lesson or two from the US and look at how the US weekly shop makes it back safe and sound in a paper bag, yet, many a ripped plastic bag further decorates the UK natural horizon.
Our dictatorial reliance upon OPEC is playing in the hands of OPEC as they know where the supplies come from and where they end up, naturally without prejudice whatsoever, unless of course the bill hasnt been paid.
The added green nonsense not only esaclates the price of every single consumable, but allows the generation of revenue never known before, by those whom we entrust to lead us through the slimey slick.

Yet, top of all economic agenda is the race for arms?
So, unless the [Scorpions] allow respite, the [Wind Of Change] will take longer to be of benefit.
Aah, alas brunch!

[Michael Cornwall 29 Apr 2008 11:27:49]

Er, yes, thanks nicely said.Can we have an article about what we are doing about the problems. As I am sure that there are some very very capable technological guys out there. Who are developing, ideas to create a better future with fresh ideas
I remember a friend of mine working on some of the first windmills,I think they were sponsered by Taylor Woodrow. Well you see them all over now.Certainly here in Cornwall you do,there are 2 small ones in my village. There are challenges, but people are doing something about them,It is current and future business.I would like you to talk about it with some of your very colourful city gents