Biden seeks cheaper oil: Opec and Russia have been put on the defensive after landmark challenge, says ALEX BRUMMER
Joint action by major economies is comparatively rare. So the decision of big oil consumers – the US, China, India, Japan, South Korea and Britain – to challenge OPEC and Russia is a signal moment.
Past coordinated actions include the rebuilding of the global economy by the G20 after the financial crisis and emergency interest rate cuts by the US, Britain and the European Central Bank at the start of Covid-19.
President Joe Biden’s decision to lead the way by releasing 50m barrels of oil from America’s strategic reserve is a big move.
President Biden’s decision to lead the way in the Covid recovery with the release of 50m barrels of oil from America’s strategic reserve is a big move
That represents just two-and-a-half days worth of US oil consumption. But we know that an OPEC decision to add 400,000 barrels to daily supply can make a real difference.
The decision of the consuming countries will not have been reached lightly. In the US, citizens regard it as a right to have access to cheap petrol.
There is something more serious in all of this. US economist Paul Krugman, writing in The New York Times, argues the current surge in inflation is simply a supply shock.
This means that while raising interest rates could point to an end to emergency Covid-19 easy money, it won’t snuff out the rising cost of living. Hence the direct action on crude.
Fiddling with free markets can have unfortunate effects and it is possible that OPEC and Russia could take retaliatory steps and cut back on their supplies.
The immediate reaction was to push Brent crude prices up by 2 per cent but future prices eased. OPEC is making the most of high prices while it has the opportunity.
Deliberately riling the world’s biggest users cannot be wise.
Change of direction
Adjustment to the post-Covid world is a huge challenge for corporate Britain. Firms that went great guns during the online boom of the pandemic, such as white goods and electronics group AO World, are now struggling.
The world’s biggest catering group, £28billion Compass, badly holed by lockdown, is roaring back to life.
In contrast, AO has a familiar bunch of complaints, which sent its share price hurtling downwards.
Costs soared after chief executive John Roberts signed up 500 new drivers in a disjointed labour market.
And as anyone who has tried to buy a First Choice tumble dryer will know, electrical goods are gummed up in shipping lanes and ports as the world seeks to cope with demand.
The consequences for AO (and for that matter, other online enterprises) is a nasty combination of higher goods prices and shrinking profit margins.
AO has been forced to scale back its previous earnings range sharply, now at £10m to £20m. That is the kind of surprise which investors abhor. It also raises questions about competence at the top.
Amid the disruption of working from home, shut canteens and sporting venues around the world (not to mention the unwanted attention of Marcus Rashford over school meals), Compass chose to strengthen its balance sheet in May 2020 with a £2billion placing of shares.
With Twickers back in its full glory, students back at universities and workplace eateries starting to buzz again – with the exception of Atom Bank – Compass feels confident enough to restore a dividend and to signal strong income prospects for 2022, up by as much as 25 per cent.
In common with AO and much of business, it does face cost challenges and shrinking margins. If, as the central banks keep on telling us, the current bout of inflation is transitory, then margin normality at Compass should be restored and hopefully not on the backs of school kids and the low paid.
AstraZeneca is not just attracting headlines in the UK, where chief executive Pascal Soriot stirred up his row with the EU.
In Sweden the Wallenberg family, the biggest shareholders in pharma group Sobi, has accepted a £5.9billion private equity buyout led by Advent.
Minority holder AZ with an 8 per cent stake is the main barrier to the deal being done. The assumption is that AZ’s objection is not about price but strategy.
AZ may have its eye on some of Sobi’s medicines or could be determined to prevent it being flipped by buyer Advent to a rival life sciences outfit.
As Pfizer learned in 2014, AZ is a hard nut to crack.