The Good and Bad News about Soaring Oil Prices; ANALYSIS

The Mail on Sunday (London, England), October 17, 2004 | Go to article overview

The Good and Bad News about Soaring Oil Prices; ANALYSIS


Byline: DAN ATKINSON

HIGH oil prices are good news for shares in giant energy firms.

Diesel is costlier than petrol because it costs more to refine.

And the Treasury is coining it in from the North Sea tax gusher.

True? Not really. Take the first point. As the cost of a barrel of crude heads ever higher - Brent crude ended the week at $50.77 - there is a widespread notion that the price of oil company shares should benefit.

'It is remarkable, given that these guys are raking in the cash,' said Mark Redway, energy analyst at broker Cannacord Capital, 'but there is no relationship between shares in BP and Shell and the price of oil. We have done a big study of this and there is no correlation.' He added: 'These companies are so big that their shares are no longer an arm's length way of investing in oil prices. They are an arm's length way of investing in the stock market itself.

'BP, for example, accounts for ten per cent of the FTSE 100 index. So when investors switch into shares, BP does well. When they switch out, it does badly.' With the price of diesel ending last week at an average 390p a gallon, against 380p for petrol, puzzled drivers who switched to this allegedly greener - and supposedly cheaper - fuel were searching for explanations.

'In general, diesel costs no more to refine than petrol,' said Ray Holloway of the Petrol Retailers' Association. …

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