Saudis release power surge: If higher oil prices continue, it could make the big fight against the threat of inflation much more difficult, says ALEX BRUMMER
The sudden decision by Saudi Arabia and OPEC to cut oil production represents yet another massive transfer of wealth from Western democracies to the Middle East.
You only need to look at last year’s financial results from Saudi Aramco, which reported £134 billion in revenue in 2022, compared to £91.6 billion in 2021, to understand who the giant winners are from higher energy prices.
The anger of consumers and politicians is aimed at the British oil companies BP and Shell. But it is the Gulf Kingdom that is the real winner.
The change in the outlook for oil prices is creating a major dilemma in Whitehall. The government is fighting against the clock to create a carbon-free future.
Yet it is also clear that wind and solar energy are much more vulnerable than oil and gas. Even if funding for nuclear energy investments can be secured, the time from drawing board to production could be a decade or more.
Cashing in: Consumer and political anger is aimed at the UK’s major oil groups, BP and Shell, but the real winner is the Gulf Empire
The superreactor at Hinkley Point in Somerset is proving more expensive and taking longer to build than originally thought.
The obvious answer for the UK, sitting on a sea of offshore oil and gas reserves, is to issue new licenses as soon as possible to encourage drilling.
Imposing windfall taxes may be politically expedient – it is the only serious tax policy on the Labor Party’s checklist – but it discourages investment in the North Sea.
Big oil has cheaper and more efficient exploration and production options in Africa. BP, among others, has already scaled back its green transformation because fossil fuel production – boosted by higher crude oil prices since Russia’s war against Ukraine – looks so attractive.
In the latest trade, shares of Britain’s largest North Sea oil producer, Harbor Energy, rose 5.7 percent. Other oil companies, including Total and BP, also posted profits.
All this should bode well for the FTSE 100, which is dominated by energy and natural resources stocks. It’s a mixed blessing for HM Treasury. Windfalls and other corporate tax revenues should go to the Treasury.
But if higher oil prices continue, it could make the big fight against the threat of inflation all the more difficult.
Good show
Stock exchanges is one of those service industries where the UK is a world leader.
Relx, with a market value of £50 billion, is a pioneer in digital exhibitions. Informa delivers hundreds of exhibits ranging from the high-end Boat Show to Arab Health.
They all had a torrid time during the pandemic and aid to the sector was patchy.
As the world reopens, exhibitions roar back.
Hyve is a minnow and, like so many second-rate British companies, easy prey for private equity. It is refreshing that M&G Investments is taking a stand against a £481m bid for the company from Providence Equity Partners, arguing that it would be better off as a public company.
M&G has dissident allies in the form of Redwheel and Blackmore Investment Partners. Their opposition may be more about a low offer price than love for the falling London stock market. The board, as too often does, so far looks like it’s ready to roll over. One of the reasons British companies are such easy prey is that the share register is often dominated by foreign hedge funds and short-term investors rather than long-distance investors like M&G.
Last week, the Financial Conduct Authority pointed out the disturbing fact that only 2% of the FTSE is owned by UK pension funds, up from 50% two decades ago.
M&G deserves all the support it can muster to see American predators, with no interest in UK plc, disappear from the battlefield.
Fight club
In these days of streaming, podcasts, social media and AI, the value of sports businesses is dangerously undervalued.
The merger between Vince McMahon’s controversial professional wrestling franchise WWE and mixed martial arts group Ultimate Fighting Championship places a potential value on the publicly traded company of £17 billion.
That might look terribly intoxicating. No doubt the combination of UFC boss Ari Emanuel as CEO and McMahon as executive chairman will end up in a cage.
But you only need to look at the huge valuations for F1 car racing and the auction for Manchester United to understand the trajectory.