Why politics, not economics, sets British oil prices

By

''Politics has taken over here and there's nothing to be done for the moment.'' That's how an oil-industry source in London sums up the North Sea oil-price scene in the dramatic wake of OPEC's failure in Geneva to set production quotas. British Petroleum (BP), the biggest oil company in Britain and the sixth largest corporation in the world, wants North Sea oil to be cheaper than its current fixed price of $33.50 a barrel.

But the British government has ruled out a North Sea price cut for the moment , preferring to see what other countries which produce similar grades of crude oil will do.

North Sea oil prices are set by the British National Oil Corporation (BNOC), which consults with BP and Shell (and other operators in the North Sea) once a quarter. BNOC wanted no change in the first quarter of this year, but BP objected.

Recommended: Could you pass a US citizenship test?

The government claims to keep out of the setting of oil prices, but this time it has stepped in to block a price fall for the moment. Energy Minister Nigel Lawson must approve any price change. So must the Treasury. Mr. Lawson has served notice Britain will not trigger any price slide, because it could become uncontrollable and Britain's name would be blackened in the developing world. In an unofficial meeting with BP and Shell executives, Lawson said, in effect, ''Do nothing until you hear from me.''

Economically, Britain could do well from the current situation, since both oil prices and the pound are falling. No one can predict just how prices and the pound will balance each other out. But British exports are cheaper since the pound has dropped about 13 percent in recent months. If the pound stays low, the balance of payments would be $4.8 billion healthier two years from now, the Treasury estimates. If oil prices dropped $12 a barrel, it is said Britain would lose around $2 billion in sales revenue. But the trade balance would remain favorable.

Share this story:

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...