Oil prices are low. You may have noticed. And now the markets are. They are reacting in two ways.
First, they have realised that low oil prices should boost the economy. Is that why markets are rising again?
Second, they are pricing in low cost per barrel for some time to come. I don't thgink anyone thinks the days of $100 a barrel, or more, are returning soon.
So what's the implication? Three, I think.
First, without harming the economy we could increase the tax on oil at present. We do not need the risk of defaltion current low prices brings.
Second, we should increase the tax on oil: we have made cliamte commitments and burning more oil cannot help fiulfil them.
Third, when banks do really look to be in some trouble we need new revenue streams. That is oil.
The case for increasing oil taxation is very clear. But will anyone have the courage to do it?
I'll be watching in March.
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Richard
i don’t understand the logic.
Has your blog been hacked? 🙂
I thought my logic was pretty clear
And no, I have not been hacked
I am not sure how long low oil prices will last. Yes, there is a glut of oil, but are they taking sufficient account of the catastrophic situation in the middle east?
I’m not convinced there is really a “glut of oil” – its got to be stored somewhere if they are to keep pumping it out of the ground and it doesn’t seem that any country has yet reached capacity (although some must be getting close by now if there really is excess supply, at which point pumping has to stop or be reduced below demand in the absence of any more storage).
The narrative of gluts or oversupply seems to be much more to do with the excessive financial speculation in oil futures, options, derivatives etc etc. which are now being unwound and more likely to be causing the sharp fluctuations in oil prices.
The fact that supply is supposedly outstripping demand does however illustrate that market economics do not apply to the oil industry as this is a game of global power and control. The tap is switched on and off for different reasons than just supply and demand, this is just one of the reasons and probably a relatively minor one in the current situation.
The oil price movements appear to be much more about the relationship of the real economy to the grossly distorted petrodollar driven global monetary system and the integral link between oil, the US dollar and international finance.
Cannot recall where I read this the other week Keith. Apparently storage capacity for oil reached near peak between December 2014 and April 2015 and the expectation was that the same period this year, which we are in now, was expected to do the same.
Moreover, I’ve seen more than one article since Christmas which notes the complete lack of movement of full oil tankers on the high seas along with stories of them moored off shore waiting for storage capacity. I wold not swear to it but this site may well have been one of them, either the author or a contributor.
Suspect that current price levels wold be down to a number of factors, from Iranian oil coming into the market through to lack of demand arising from sluggish markets due to insufficient amounts of money in circulation because it’s being stockpiled in swimming pools in the Cayman Islands, China no longer propping up the markets, and producers like SA trying to bankrupt the US fracking concerns and wreck the Russian economy by keeping production as high as possible which apparantly may well be having unintended consequences for their own medium term economic viability).
I’ve been thinking this for a long time, but we all know that the tories care not a whit about the environment and the economy is in such a fragile state before the May elections that Osborne won’t risk it.
This is an interesting dilemma for economists and politicians – do we take all the “Green stuff” seriously or just carry on as we always have done with our traditional world views (as pointed out by Joe Burlington in his very valid post on your housing blog about the impact of the environmental crisis on decision making).
The financial markets have been doing the reverse of economic logic in that stock index prices have been falling in price with oil price falls, and rising again on the small increases in oil prices. Due perhaps to the resource heavy stock markets in the UK and US especially, but probably also using oil prices as some indication of global economic demand as most other indicators seem to be pretty useless at the moment.
So are low energy prices a good thing or not? That must depend on the type of energy so the argument for taxing consumers of oil, gas, coal etc would still apply.
But that could hurt global “growth” which is not good – or is it if we are measuring the wrong type of growth with GDP.
So it does look like economists and politicians need to develop a new world view pretty quickly because the logic of all these arguments is becoming a bit of nonsense unless there are some clearly defined “goods” and “bads” which can be agreed on.
As for the oil producing nations, we all know in an ideal world they want higher prices and higher production and higher market share (not possible so therein lies part of the price/power struggle) to achieve global domination for power and control reasons – so anything that is really said by politicians in an oil producing country has to be questioned for what they really mean.
If Low oil prices are good for the economy,surely raising oil prices via higher taxation would logically be bad for the economy, as would be rising inflation ? I’m struggling to see your logic here.
Tax has multiple goals
As does monetray policy
An increase in oil tax now tackles market failure on climate change, delivers incraesed inflation (which we need) and adds a revenue stream if banking fails
But I accept it slows recovery
The latter can be corrected elsewhere: cut VAT if you want to achieve that
Taxing carbon is more important, I suggest
UK oil consumption peaked in 1996, dropped through The Great Recession, reached a lower peak in 2004, and has dropped since.
An increase in taxation, on companies, would be passed onto consumers.
With oil being used less annually, and gas taking the strain more and more in electricity generation, I struggle to see the logic in tax rises….and neither does George. Always a canny politician, I do not expect him to raise taxes on fuels….although he maybe canny enough to raise VAT and blame the EU. Wise move: He’s not much bothered in or out, and it would hurt Dave. General agreement between the producers to maintain production as-is, and not raise it, seems to have been the cause of market erratic behaviour, I do not expect that to continue for long…although factoring in electronic trading has problems…who knows what the algos’ are programmed to do?
Another thing is that motor fuel use is dropping due to more efficient engines, and fuel tax is dropping too. Big problem: political unpopularity versus venue. George is a political chancellor.
I’m not factoring climate change in at all. I remind myself that we are still in an ice-age, albeit inter-glacial. Sooner or later the globe will drift back into the glacial part, and then we are in deep doo-doo.
The logic is to increase the downward trend in use
Current price cuts may reverse that
I agree: the tax would be passed on. In this case I would want that
The price of car ownership is going higher: Irrespective of oil.
Insurance is going to be at least 10% higher this year. And, of course, starting next year car tax on new cars is going to lead to very sharp intakes of breath: Top range cars will be paying some £2000 for the first year, and successive years £140/yr. Only NO emission cars will have zero car tax. Even very low emission cars will be paying £140/yr. Older vehicles stay the same as now.
I note that the Galileo constellation of GPS satellites (EU) is reaching full capacity soon. Unknown to many (or any) a rather nice experiment in road pricing has been going-on in Germany. Commercial vehicles [trucks] have been charged for their use of the road, using the already existing USA GPS constellation. The experiment was an unqualified success. Within the next 10 years all vehicles will, in all likelihood, be required to be fitted with GPS based road-charging devices (they work, the insurance industry has been using them on high-risk drivers for nearly 5 years now). So you see that, at least in the EU, there is every intention to increase the cost of, and decrease the use of, motor vehicles.
A significant contribution to the present low cost of oil was the USA use of hydraulic fracturing to increase the extraction rate of underground reserves (they have actually been using the system for over 40 years), leading to a massive increase in available gas and oil, and a subsequent decrease in imports. Countered by the other oil producers increasing output and saturating the market, leading to the price decrease. I suspect they thought it would drive US producers out of business. Seems they though wrong. At least, while many did go down, the wells remained in production (any money is better than no money).
Interestingly, a reserve of oil, near Gatwick, is considered to hold up to 100 billion barrels with a recovery rate expected at around 20% (so around half the amount that has currently been extracted from the entire north sea fields). If anyone seriously thinks that is going to remain underground….
I would like people, with respect to solarPV, to consider the environmental damage being done in the mineral mining, refining, and production of those solar panels. Of course, this does not happen here, so many will not care. With coal-fired generators being priced out of the loop the strain will fall onto the CCGT plant (at this time generating 20.26GW of an output total of 50.5GW)(coal 12GW, nuclear 7GW and wind 1.5GW) Various inter-connectors are at capacity. We can disregard the wind because it is not reliable.
Currently, grid stability is maintained by bringing more plant online. With the coal plant taken out stability will be maintained by temporary use of the Short Term Operating Reserve (private diesel generators mainly), followed by “demand-side-planning” (power cuts).
But then, with more efficient consumer devices we have a reduction in demand (slow, but going down). Unfortunately, the older stuff made “brown-outs” possible. New stuff doesn’t do power reduction by voltage lowering. Oh well, swings and roundabouts!
So you’d like to fry the planet
The reality is that unless most oil stays in the ground tat is the outcome
I really don’t think that leaves a choice
Gatwick’s oil needs to stay just where it is
JohnM @February 18 2016 at 7:38 pm
“We can disregard the wind because it is not reliable.”
No we can’t. Scotland currently supplies ~50% of its electricity through renewables, most of which is wind. Moreover the rate of growth of wind power capacity is so high that by 2020 Scotland’s ‘clean’ electricity will double again to 100% of domestic demand.
I wouldn’t hold my breath. David ‘all out for shale’ Cameron will never increase tax on fossil fuels.
Meanwhile on the side of the coin they don’t want discussed, the UK is the only G7 country actively increasing its already generous fossil fuel subsidies – to £6 bn a year…
http://www.theguardian.com/environment/2015/nov/12/uk-breaks-pledge-to-become-only-g7-country-increase-fossil-fuel-subsidies
And all the time nobody – least of all ‘free market’ Tories who go red in the face at help for clean energy – stops to think why a 150 year old industry needs subsidies in the first place.
It turns out that Cameron’s infamous trip to the Arctic to ride with the huskys was nothing to do with climate change after all.
He was really on a secret mission to scout for new oil, gas and mineral reserves for his mates in the City. While he was there he signed several new exploration treaties with BP/Shell/Glencor and set up a new offshore tax haven under an arctic glacier.
He and Samantha then retired to an ice hotel to read The Joy of Tax (OK maybe I made that bit up, that’s just too unbelievable!)
He claims they have read it already…..
To be honest I had to laugh when I saw the cost of fuel when it came down – all I could think was that people would buy more of it and start using their cars more again.
In an economy with shrinking or stagnant wages, anything that lowers the cost of living is of course welcome.
But the reason I had to laugh was that the market simply cut the cost of something that we all know is a bit wrong really – that diesel fumes are a killer, that the roads are not the empty, open spaces we see portrayed in car adverts but increasingly congested and of course modern car ownership just contributes to the acquisition of private debt really which seems to be growing ever and ever larger.
None of these things are really healthy for us or the planet. But the market has cut petrol and diesel prices – not house prices or rents or utilities or foodstuffs, medicines or rail fares – things that you could say are more useful and beneficial. No not at all. All it has done is cut the cost of a major pollutant.
Fantastic!
‘Don’t know about you petrol heads but this tells me a lot about the nature of markets.
BTW has anyone seen that great cult film by Alex Cox ‘Repo Man’ (1984).
There is a great quote in there if I may;
” The more you drive, the less intelligent you get”.
Not one I recall
How to regain a healthy planet, no profit in it. Every house could have solar panels, which could help, not enough profit and of course it takes away our reliance on the energy giants. Good affordable public transport to get us to work, used to use it, obviously not when I became a district nurse, needed room for the dogs, before health and safety stopped me taking them on my visits. Lovely pet dogs they were, Lab and retriever. When I was young, here I go again, we were warm and well fed. Now I don’t have the heating on all the time, extra jumper, because it is too expensive. That nice American actor writing in the guardian few days ago, mentioned my lovely Lancashire and fracking, we don’t want it, full stop, are you listening Westminster. This planet is crying out for man to work in harmony with it. No profit innit.
Sylvia you have summarised precisely why the private financial markets are never going to provide the answer to a sustainable future, and therefore why their time serving real human needs has come to an end. When a social system no longer supports its people’s real interests there will firstly be unrest (we’re certainly at that stage), followed by either evolution or revolution to something better. Evolution is certainly better, but resistance from vested interests will unfortunately make the latter more likely!
Richard,
I find this particular article quite distressing, if I may.
Firstly, the acceptance of tax/costs being “passed on” to the consumer is an implicit acknowledgement of the fully discredited theory of tax incidence. To me, frankly, this blythe cheek turning on an issue of such importance is, honestly, devastating.
Secondly, we, rightfully, rail against the rentier class. Look at such ‘ideals’ currently in London. Rents on flats is outrageous. I can see this even from my current perch in München. Do we really want to toss our lot in with those who believe in rentierism?!
Finally C, taxes such as these affect the common man, the worker, the builder, the tradesman. Should we call for such a tax, increases generally being a positive, in my opinion, should there not be a modest exemption for those in society who, rightfully, build things?
As a lay economist, I find calls to join the rentier class of parasites to be troubling. Of course, unless, there is a greater societal good I am missing.
James
I am sorry you are distressed but have made clear I am happy for compensating Rac changes to ensure the imoact of this change is equitable
We need taces on carbon if we are to tackle global warming
I make no apology for saying so
But I avpcceptt hey need to be progressive
“contributes to the acquisition of private debt”
Debt is the only game in town here. UK productivity is dismal. If the French only worked 4-days a week their productivity would be better than out full week (as Richards acquaintance @D_Blanchflower is currently twittering)
Full employment at low efficiency with minimal investment in new plant or systems of work. UK2016.
If higher oil and petrol taxes are introduced and passed on to the customers and this results in falling demand this presumably increases losses in oil exploration and petrol companies. This would inevitably lead to more job losses in an already hit industry. More of a glut, forcing prices even lower and increasing losses even more.
You may think the pain caused to the redundant workers and their families was worth it on environmental grounds but I would like to see you put forward your reasoning to an audience of Aberdeen oil workers.
It would be an interesting event.
I have long argued Scotland needs to move to a sustainable energy policy
And I have no doubt that it will
Yes Aberdeen will suffer, but that is going to happen come what may as North Sea oil declines
I would happily take on the argument that Aberdeen’s job is to move to the forefront of tidal energy now
Aberdeen already has a plan.
They propose spending £415 million to repurpose the city’s port infrastructure to benefit – not lose out – from the transition. The new facilities will be aimed both at decommissioning offshore rigs and constructing the huge amount of kit for offshore renewables.
Too many see the doom and gloom of an ending, but forget there is also the opportunities of a new beginning. The Scottish Greens manifesto for the upcoming Holyrood election for example promise over 2 00,000 new jobs in such clean energy activities nationwide.
I applaud that
I have met Scottish Greens and like their thinking
If your sole generation capacity is wind power, with no high-capacity high-rate-of-release storage, you have an unstable supply. Effectively, you have no supply.
What people forget is that once the grid collapses, it is not just going to come back up on its own. And at the present, in the UK, if you have a solarPV system, a grid cut means your system turns off as well…safety.
It does not matter that the turbines have a 100% supply capacity, at present, to supply the entire Scottish grid from wind, using average efficiency figures, you would need around 300% of capacity (maybe more) And that takes no account of grid losses…loads of cable means loads of loss. Still, they have loads of hills and lakes, so maybe they can rig a few high capacity hydropower projects up (except there are already loads of people moaning about the hills festooned with wind turbines…some people are never satisfied).
So if TTIP goes through…and it looks very much that it will…how much is .gov.uk going to have to cough-up to multinational energy companies for refusing to extract the oil/gas?
Interesting times are coming.
And: We are STILL in an ice age….
Sorry – I have heard the wind argument from many sources dediated to carbon
No one is planning a wind solution alone
Solar, hdro, wave and wind all have roles to play
And I really don’t care if we are in an ice age for a few thousand more years …. in a very few years massive change in our behaviour is needed
If we slide back to a glacial period. It will be game over. Fortunately, it looks as if the climate warming activities will lengthen the current interglacial period. It is reckoned that if CO2 slips below 240ppm it will start the slide back to the ice age (pun).
Although, since nobody knows what the trigger is, it’s kinda hard to get excited about it. Although a look at work on linking glacial periods with cosmic radiation looks interesting. Still, glacial periods are expected to reduce over the next few million years.
One thing is sure: If we enter an ice age (not expected for several thousand years), it will be a near-extinction event.
Not to worry. We won’t be here to witness it.
Looks like the US is developing local small modular fission reactors for local power stations….India and China are doing their own thing with similar, and developing thorium reactors as well. Europe is messing about with large-scale fusion projects…. The UK is, well, just messing about as usual.
As the grid guy said: “we’re not talking about power cuts. Now we’re talking about demand side regulation of power supply” (power cuts)
Nuclear vapourware won’t cut it. Onshore wind is here now and as of 2015 is the cheapest source of electric power there is…
http://www.theguardian.com/environment/2015/oct/07/onshore-wind-farms-cheapest-form-of-uk-electricity-report-shows
…and, like the mobile phone revolution, economies of scale ensures wind (and solar too) will only get cheaper and cheaper.
That benefit will never kick in for bespoke nuclear as it will never be manufactured at scale.
And: Friday 19 February 2016
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/12159255/Shares-in-UK-oil-explorer-soar-as-flow-from-Gatwick-gusher-beats-expectations.html
How much additional tax would you add to the price of petrol?
Just for context, about 70% of the price of a litre of petrol is sales taxes – about 60p per litre of fuel duty, and 20% VAT. That is without considering the direct taxes (corporation tax, PRT, etc) paid by the producer, distributer and retailer, etc.
Would you increase fuel duty by say 20p or 30p per litre, to put the price back to where it was for most of 2011-2013? (around 130p per litre, compared to around 100p per litre now) I think it could be justified on environmental grounds, but at considerable pain to the economy (one of the consequences of taking climate change seriously is that many people in the UK, US, etc, will have to reduce their energy consumption considerably). I would also expect fuel protests, like there were in the 2000s, and I doubt any politician with an eye to being re-elected would want to risk that. How do you take the public with you?
Politically, I would be looking at around £1.15 a litre
Politically, you have little chance of Ozzy doing that.
Politically, if labour go into an election on a tax-rising manifesto (on anything other than the NHS), then we will have another tory government.
With all the alteration to voter registration, and boundary re-assignment, not forgetting they may have significantly lower funding available, it looks as if Ozzy could get elected on a banner just about anything unpopular….
And now we have the EU referendum coming along, with the horses being neck and neck. Still, the press and media will attempt to get a no vote…if we vote goodbye, Dave is gone. Ozzy is 60/40, BoJo is way behind….and they say politics is boring?
If there is a Tory party by then
You cannot imagine how vicious the in fighting is going to be
Especially if Boris goes Brexit
The Portuguese did, they have increased tax on oil: http://theportugalnews.com/news/fuel-tax-hike-comes-into-effect/37437