The price of oil has exercised our typing fingers already on this blog. How could it not? The below graph shows just how significant this story is. At the beginning of 2014, a barrel of Brent Crude cost around $108 dollars. At the beginning of this year, it cost closer to $36. That’s a decline of 66 per cent. A full two-thirds.
And it’s declined still further. At certain points in January and February, Brent Crude has traded at less than $30 a barrel – the last time that happened was in April 2004. It’s currently around the $39 mark.
We’ve previously mentioned – and graphed – one of the happy side-effects of this. The price of diesel and unleaded has come down too. According to figures from the Department of Energy & Climate Change, a litre of the former costs, on average, 27 per cent less than it did at the start of 2014. A litre of the latter costs 22 per cent less. This is an incredible gift for motorists.
And it’s not just our road fuels that are affected. Oil prices factor into many things we pay for, from the energy we use in our homes to the plastics we stock them with. Some of these effects are captured in the latest inflation figures from the Office for National Statistics. The cost of living, as measured by the Consumer Price Index, rose by just 0.3 per cent in the year to January, but it would have been higher were it not for the downwards pressure exerted by oil prices. The cost of the ‘electricity, gas and other fuels’ that we use in our homes actually fell by 3.7 per cent over the same period. ‘Fuels and lubricants’ for transport fell by 7.3 per cent.
In theory, this should boost the Government’s coffers too. If petrol costs less, then we’ll probably use more of it. If heating is cheaper, then we’ll turn it up. And the result will be more tax revenue going from our pockets to the Exchequer.
But that’s only the theory. In practice, the Government’s revenues are being hammered. Their forecasting body, the Office for Budget Responsibility, observed in November that ‘our forecast for UK oil and gas [tax] revenues is just £130 million in 2015-16, down from £2.2 billion in 2014-15 and receipts of just under £11 billion four years earlier.’ They have them remaining about this low for the next five years. Which isn’t great when there’s a yawning budget deficit to be filled.
Those declining tax revenues reflect the difficulties faced by Britain’s oil and gas providers. We’re fortunate, in this respect, that we do not have an economy built upon oil fields – but we still have a sizeable industry based around them. BP is already having to cut 4,000 jobs worldwide, including 600 from Scotland and its operations in the North Sea. According to some analysts, the North Sea could suffer a net loss of 23,000 jobs by 2020.
This has been a post with a lot of numbers in it, but, really, it all comes down to what’s behind the numbers: winners and losers. Tax revenues and some people’s jobs will be massively affected by the cheapness of oil, even as many of us feel the benefits. A full tank at a low price may not be the gift we think it is.