We may well be rejoicing at the pumps while filling our various vehicles with petrol, but in general the fall in oil prices is having a devastating effect on the UK economy. Both consumers and businesses that have high transport costs will benefit, but due to the existing high tax tariff on fuel, they may not benefit very much. The same will be true of those businesses that have high energy bills.
The price of oil has fallen in 18 months from $115 a barrel to around $28 a barrel. The world’s oil supply has been growing, particularly because of the introduction of ‘new-oil’ from fracking in the USA and the relaxation of trade embargoes in Iran. If that was not bad enough, due to the economic slow-down in giant economies like China and Brazil, there is a huge fall in demand. The current predictions would suggest that a barrel of oil will be worth only $10 in the coming months. Oil prices have not been this low since 1998.
The North Sea oil industry will almost certainly see the biggest impact, with an estimated loss of 35,000 jobs over the next five years. Last week BP announced that it would be cutting 4,000 jobs globally of which 600 would be in Aberdeen. Matthew Hancock MP, UK Business Minister said “The number of employees supported by the industry stands at 375,000. We applied a number of drivers to estimate future employment demand over five years; this places the 2019 workforce at 340,000 – driven primarily by a significant declining forecast in North Sea oilfield investment.”
The renewable energy sector has also been badly hit. Together with the massive cuts in subsidies for solar and wind power in recent times, the collapse of oil prices has meant oil and gas has once again become attractive as a main energy source. The return on investment to build solar and wind farms is not as viable as it has been in the past.
And finally, if there were not enough problems with pension investments already, falling oil prices will cause yet another hit on pension portfolios. Many of which have invested heavily in oil companies. The two oil giants BP and Shell have seen their share prices fall 35% and 45% respectively.
All is not doom and gloom, there will always be a need for oil, BP said it remained committed to the North Sea, and will be investing $4bn in North Sea oil and gas, including the new Clair Ridge project and the redevelopment of the Schiehallion and Loyal fields, west of the Shetland Islands.
