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Record UK Pound Oil Price

Posted by Chris Vernon on March 29, 2006 - 6:25pm in The Oil Drum: Europe

On the back of a 2% rise in the price of oil and 0.44% fall in the value of the UK pound against the US dollar today (Wed 29th Mar 05) I believe we have a new record price for oil when the US dollar price of West Texas Intermediate is expressed in UK pounds (hat tip ianbeale). Is this significant? I'm not sure - but I am surprised by the total lack of coverage of the high oil prices on television media today.

Today's $65.72 and 1.73515 dollars to the pound results in a value of £37.88 a barrel. With a stronger pound during the spike after Katrina the price only just crept above £37 and compared to May 2005 the ~$50 oil and exchange rate of over 1.9 resulted in a UK pound price of approximately £26.30. In less than a year prices when looked at like this have increased some 44%. Luckily the UK doesn't have to buy much US dollar denominated oil with UK pounds.

Graphs show dollar denominated oil prices and the dollar-pound exchange rate over the last year.




Click graphs to enlarge (source: BBC Market Data)

Record UK Pound Oil Price

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6 comments

biffvernon on March 30, 2006 - 2:56pm Permalink | Comments top
>I am surprised by the total lack of coverage of the high oil prices on television media today.
There's only room in the media brain for one energy related item per day and today's was the news that decomissioning and cleaning nuclear sites is more expensive than previous estimates.
http://news.bbc.co.uk/1/hi/business/4859980.stm
zceb90 on March 30, 2006 - 3:28pm Permalink | Comments top
<Luckily the UK doesn't have to buy much US dollar denominated oil with UK pounds.>
This situation will steadily change for the worse as ongoing N Sea declines have to be increasingly made up by additional imports.  Commissioning of Buzzard in 2007 will stall declines for around 1 year but at reported peak rate of 190k bopd it can only hold off further declines for a short time.  In addition Buzzard's peak rate cannot hold up for long as it constitutes a very rapid depletion rate relative to quoted EUR of 550m bbls (just 7.51 years).

By 2010 we can expect oil imports to be adding substantially to the record level of UK trade gap just reported (£31.9bn for 2005): http://business.timesonline.co.uk/article/0,,16849-2109375,00.html

If we then include gas imports the trade deficit will rapidly reach levels which, in the past, have led to devaluations, IMF intervention etc.

pondlife on March 30, 2006 - 3:49pm Permalink | Comments top
Now it's $66/barrel

I may be thick but why doesn't it cost us the going rate
ie £37.88/barrel in the example Chris quoted - surely we just buy our oil at the Sterling rate?

Maybe BBC News will be along with the usual story
explaining that it's due to 'fear' about Nigeria/Iran/etc..

Can someone also explain how economists say that supply and demand are in equilibrium thru price - but there is also a 'fear premium' adding to prices...is this fuzzy logic at work?

Methinks it's time to overstock my strategic wine reserve.

cheers

Chris Vernon on March 30, 2006 - 4:49pm Permalink | Comments top
Prices are just going up and up - Bloomberg are now showing $67.15! And still the BBC is silent on the subject.
Essex Land Rover Man on March 31, 2006 - 12:27pm Permalink | Parent | Comments top
Now they are falling. $65.65 as I speak. Profit taking? Or someone talked up the price and now someone else has talked down the price. Volatility makes for profits for some people and makes life hard for actual buyers of crude and related products like airline companies who do the real work in life. Not that I particularly like airline companies who contribute to GW and will be badly affected by peak oil.

Still, no media companies are saying anything about the high prices, the oil company profits and the hurting economy guzzling the oil down its throat.

Agric on March 31, 2006 - 11:40pm Permalink | Parent | Comments top
The spike Thursday was possibly due to Iran rejecting the UN security council proposals and the sharp drop in US gasoline reserves reported Wednesday.

Earlier today I wrote elsewhere (a non PO related blog): "The price of oil topped $67 a barrel this week and I bet no one even noticed. A year ago it did the same, it was a new record then. We will be seeing $100 a barrel oil this year. In the last 3 months the oil price is up a mere 9.2%, gold up 13%, silver up 30%, copper up 21%. That's annualised rates of 40% to 130% increase and nothing seriously untoward has been needed to push them. The first serious signs of economic breakdown are probably no more than 6 months away now."

There is a fear premium in current oil and gold prices (in particular) but I think it worth trying to distinguish between 'structural' and 'short-term' risk premiums. In the case of oil I would guess that there is a structural risk premium of about 5% to 10% which will probably not evaporate until after a year or more of clear surplus supply. There is also a short-term risk premium which is more volatile and dependent on current events, I would put this at about 10% at present, it could evaporate within a month if all perceived immediate risks disappear, it could double or more in a day.

I'd be surprised if oil (Nymex WTI next month contract) drops below $58 in the rest of this year, less surprised if it topped $120. Gold will top $600 in 2006, $750 is quite possible, $1000 plausible if geopolitics get squiffy.

Record UK Pound Oil Price

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6 comments