Saudis release a gusher: If higher oil prices persist, it could make great battle against menace of inflation that much harder, says ALEX BRUMMER
The sudden decision by Saudi Arabia and Opec to cut oil production will mean another huge transfer of wealth from Western democracies to the Middle East.
One only has to look at last year’s financial results from Saudi Aramco, which reported £134billion of income in 2022, up from £91.6billion in 2021, to understand who the mammoth winners are from higher energy prices.
Consumer and political anger has been directed at the UK’s big oil groups, BP and Shell. But it is the Gulf Kingdom which is the real winner.
The change in the outlook for oil prices creates a big dilemma in Whitehall. The Government is battling against the clock to create a carbon-free future.
Yet it is also clear that wind and solar power are much more fragile than oil and gas. Even if finance for investment in nuclear can be released, the time it will take from drawing board to production could be a decade – if not longer – away.
Cashing in: Consumer and political anger has been directed at the UK’s big oil groups, BP and Shell, but it is the Gulf Kingdom which is the real winner
The super-reactor at Hinkley Point in Somerset is proving more expensive and taking longer to build than originally thought.
The obvious answer for the UK, which sits on a sea of offshore oil and gas reserves, is to grant new licences as soon as possible to encourage drilling.
The imposition of windfall taxes might be politically expedient – it is the only serious tax policy on the Labour Party’s check list – but it discourages North Sea investment.
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 prices since Russia’s war on Ukraine – looks so attractive.
In latest trading, shares of Britain’s biggest North Sea oil producer Harbour Energy advanced 5.7 per cent. Other oil majors including Total and BP also recorded gains.
All of this should be good for the FTSE 100, which is dominated by energy and natural resources stocks. It is a mixed blessing for HM Treasury. Windfall and other corporation tax revenues should benefit the Exchequer.
But if higher oil prices persist, it could make the great battle against the menace of inflation that much harder.
Good show
Exhibitions is one of those service sectors where the UK is a world leader.
Relx, with a market value of £50billion, is a pioneer in digital exhibitions. Informa delivers hundreds of exhibitions ranging from the high-value Boat Show to Arab Health.
All had a torrid time during the pandemic and assistance for the sector was patchy.
As the world has re-opened, exhibitions are roaring back.
Hyve is a minnow and like so many second-tier UK firms is easy prey to private equity. It is refreshing that M&G Investments is taking a stand against a £481m offer for the company from Providence Equity Partners, arguing it would be better off as a publicly quoted enterprise.
M&G has allies in dissent in the shape of Redwheel and Blackmore Investment Partners. Their opposition might be more about a lowly offer price rather than any love for the diminishing London stock market. The board, as is too often the case, until now looks as if it is ready to roll over. Among the reasons why UK firms are such easy prey is that the share register is often dominated by overseas hedge funds and short-term holders rather than long-haul investors such as M&G.
Last week, the Financial Conduct Authority pointed to the disturbing fact that just 2 per cent of the FTSE is in the hands of UK pension funds against 50 per cent two decades ago.
M&G deserves all the support it can muster to see US predators, with no interest in UK plc, off the field of battle.
Fight club
In these days of streaming, podcasts, social media and AI, the value of sports enterprises is undervalued at peril.
The merger between the controversial Vince McMahon’s professional wrestling franchise WWE and mixed martial arts group Ultimate Fighting Championship places a potential value on the publicly quoted enterprise of £17billion.
That may look terribly heady. Doubtless the combination of UFC boss Ari Emanuel as chief executive and McMahon as executive chairman will end in a cage.
But one has only to look at the huge valuations placed on F1 motor racing and the auction for Manchester United to understand the trajectory.
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