The main reason the oil price has eased is that, as speculative froth has blown off the oil market, there are growing signs of weakening demand in China – the world’s biggest crude importer. Several major Chinese cities are returning to lockdown as Beijing grapples with a new spike in Covid cases. That’s led to a pause in activity in energy-hungry manufacturing hubs like Shenzhen.
At the same time, it’s becoming clear that Western energy sanctions, while extremely serious, are not quite as tight as suggested by the belligerent political rhetoric. The UK and European Union, for instance, far more dependent on Moscow’s exported energy than the US, won’t ban Russian crude until the end of the year at the earliest.
What really matters to most people, though, isn’t the ins and outs of global energy markets, but the price they pay for their fuel. So last week, when I saw Kwasi Kwarteng, Secretary of State for Business, Energy and Industrial Strategy, I asked him what he thought of the recent disconnect between the ongoing rise in petrol and diesel prices and the falling price of crude.
“I’ve seen anecdotal evidence of that – I think we should get more information and it’s something we should be focussed on,” Kwarteng told me, in an interview for GB News. “But,” he continued, “I think it’s really bad and wrong for companies to be keeping high petrol and diesel prices to reflect higher oil prices, but then when those oil prices come down, to keep those higher petrol and diesel prices”.
I reminded Kwarteng that he had met various large oil companies a couple of days before, at a “Prime Minister’s Energy Roundtable”. There have, rightly, been numerous meetings between senior energy industry insiders and ministers over recent weeks. This Russia-Ukraine conflict has starkly exposed the UK’s chronic overdependence on imported energy. The government’s delayed UK Energy Security Strategy paper will be published this week.
“When you met them, did you ask petrol retailers about ongoing rises in fuel prices for motorists even though oil prices have fallen?” I asked Kwarteng.
“No – during that most recent meeting we were focused on how to bring more oil and gas supplies from the North Sea,” he replied, to his credit. “But I will be seeing many of [the petrol retailers] soon, “Kwarteng continued,” And it’s a point I’ll raise directly with them. “
I’m pleased to say that my meeting with Kwarteng sparked what I believe was an important and wide-ranging discussion. “When it comes to energy it really pays to have a long-term plan and for successive years, we haven’t had a long-term plan,” he told me. “Over the last 30 years, governments have taken quite short-term views – and this is nowhere more apparent than in our attitude to nuclear energy, which has been woeful”.
While insisting that “net zero is something we want to achieve”, Kwarteng acknowledged that “how we get there and the means we use are a matter of wide debate”. He also said that fracking “remains highly controversial”.
These nuances will be pored over by energy industry investors and analysts. But what matters to most of us, as sanctions bite and the cost-of-living spirals, is why petrol and diesel prices go up so quickly when oil prices rise, but don’t fall when the cost of crude comes down.
Kwarteng gets that – and says he’ll soon be asking the petrol retailers for an explanation. I look forward to hearing what they say.
Follow Liam on Twitter @liamhalligan