The financial agony that the world is going through began in July 2008. In that momentous month oil touched $1.47 a barrel. Sixty days later the global economy buckled and shut down. Because the price of oil is embedded in all products and services, the world supply chain became too expensive and consumers couldn't afford to spend because suddenly everything cost more. Everybody's purchasing power was reduced and the balance sheets of the world's biggest companies and banks took an almighty hit from which they've still to recover. Oil hit $1.47 for a raft of reasons - much of it from speculation - but mainly because the new demand from China and Asia for oil added up to one third of the global population. We just weren't ready for such a massive spike in demand. (Photo of Peter Carroll and myself outside the Treasury last year)
So demand raises the price of oil, the price becomes economically unsustainable, the supply chain gets unaffordable and global economies collapse. That's the way the economic cycle plays out when oil gets too expensive. And this is an immutable financial truth, which if we chose to ignore, will bring the downfall of the global economy. And if you want to know why oil has fallen to $97 a barrel in the last few weeks its because of global pessimism and massively falling demand. Speculators and banks have baled out of their crude futures, weak economic data from China has sent shivers across the markets and there's now a huge oversupply of oil because OPEC was forced to pump the most they have in thirty years just to bring the price down. Those Who Know realise the price of oil has brought the world economy to the brink of ruin.
You may welcome the brief respite in pump prices, but make the most of it because it won't last. Already Venezuela and Argentina are saying oil is too cheap and want prices to return to $110 a barrel - what they consider to be a 'fair market price'. The cost of extracting the stuff is getting ever more expensive and every financial analyst in the world knows that energy prices never stay low for long. What's happening now is a waiting a game, another calm before the storm, as traders and oil producers watch nervously to see what happens in Greece, Spain, France, China and the US. As soon as there's the slightest sliver of good news, they'll start buying oil futures again and prices will move back up. Over the last week I've watched markets go up and down in a single morning, as investors try desperately to believe there's a financial upswing worth betting on. This is a cycle that will constantly repeat itself, again and again.
Yet against all this volatility we have a government that wants to actually raise fuel duty and burden the UK supply chain with yet more cost. They don't seem to realise that high fuel prices cause reduced purchasing power which causes economic contraction. Putting another 3p a litre in duty may not seem so terrible right now with pump prices lower, but you wait until the end of this year when oil starts to climb back towards $1.30 a barrel. That's when this planned duty rise in August will seem positively suicidal. Instead of ignoring the damage that high oil prices have done to the global economy, the Treasury should be working out a proper fuel stabiliser that protects the UK economy from all these debilitating outside forces. We need duty to go down when oil goes up and we need that mechanism in place soon before its too late. The need has never been greater and the stakes have never been higher.
Please don't forget to email your MP to stop this 3p Fuel Duty Rise planned for August. It's simple to do go to "EMAIL MY MP"