SIMON WATKINS: Oil industry must be safeguarded as drop in the price of oil triggers firms to freeze pay, shelve investment plans and cut jobs
Oil is a slippery thing in more than the obvious sense of the word. The recent drop in the price of oil – and therefore petrol – will make for a slightly happier Christmas for most of us, but it is casting a dark shadow over the North Sea oil industry, putting investment and jobs at risk.
Already oil groups are freezing pay, shelving investment plans and warning of job cuts.
Like any industry, the oil sector is bound to play up the threat it faces in a bid for special treatment, but even allowing for a little alarmism it is clear that the price shock is a serious challenge.
Slippery: The recent drop in the price of oil – and therefore petrol – will make for a slightly happier Christmas for most of us, but it is casting a dark shadow over the North Sea oil industry
The Chancellor has already announced a modest cut in the tax levied on North Sea oil groups. Tax breaks for investment have also had a small boost, but much more must be done.
As we report this week, the fall in the price of petrol has pumped millions of pounds into the pockets of shoppers in the last few weeks.
For most of us the lower cost of a tank of fuel will mean a few more presents under the tree – maybe an extra bottle of wine or two.
For retailers it all adds up to hundreds of millions of pounds of extra cash sloshing through their tills.
By keeping the rate of inflation lower the falling price of oil is also helping to delay any rise in interest rates. But it is wreaking havoc in the oil business.
Dozens of oil exploration groups have seen their share prices crash in the last few months and the North Sea industry is braced for job losses.
At a price of $60 a barrel it starts to be unprofitable to drill for oil in many cases. New reserves will be left untapped. Investment will stall and this will have knock-on effects into the engineering sector.
Some good news: For most of us the lower cost of a tank of fuel will mean a few more presents under the tree – maybe an extra bottle of wine or two
As ever there is a balance to be struck between the long and short term. In the future it may be desirable that we consume less oil and that our economy becomes less dependent on it.
But it would be naive to believe that oil will not be a crucial part of our energy supplies for many years to come.
It has to be preferable that Britain consumes oil produced from our own oil fields, both economically and politically. For that reason it is crucial that the recent collapse in the price of oil – which is unlikely to last for ever – does not lead to a dramatic cutback in investment and employment in the North Sea.
Much more may need to be done to encourage investment in this industry – if only temporarily – to make sure that what in historic terms may prove to be a short-term fall in the oil price does not lead to long-term damage to what is still one of our key industries.
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