Oil at $10 a barrel will be ‘a good thing for us all’

GEORGE Osborne yesterday described the collapse in the oil price as ‘ a good thing’ for Britain as the boss of BP conceded crude could fall to $10 a barrel – albeit temporarily.

On his arrival at the World Economic Forum in Davos, the Chancellor put the recent turmoil on financial markets down to developments in China and the drop in the oil price.

He added: ‘ Because of the very sharp falls in the oil price the markets are unstable. But fundamentally for most western economies the fall in the price of energy is a good thing.’

Crude hovered close to a 12-year low of under $28 a barrel last night, from above $115 some 18 months ago. The slump has wreaked havoc in the North Sea oil and gas industry, where thousands have lost their jobs, but it has slashed the price of petrol on British forecourts.

US Treasury Secretary Jack Lew argued the oil price fall, caused in part by the American shale revolution, was good for consumers.

‘For anyone consuming oil, lower oil is a tax cut,’ he said.

But the AA said British motorists are not benefiting as much as they should be because petrol prices have not fallen fast enough.

‘Our members have watched in dismay and complained bitterly as the price of oil has crashed but pump prices have moved very little since Christmas,’ said Edmund King, the AA’s president.

BP chief executive Bob Dudley said it was ‘not impossible’ oil would fall to $10 a barrel as some analysts have predicted. But he said that he expected the price to rise in the second half of the year as demand increases in the United States and China and supply eases as producers who have been hit by the recent collapse in prices shut down production.

‘It has been low in the last year… but it is not lower forever,’ Dudley said. ‘I think it’s going to be a year of two halves. We could see a price [of] $30 to $40 by the middle of the year and I think towards the end it could be into the $50s.’

Dudley’s upbeat assessment came despite the International Energy Agency this week warning that the oil market ‘could drown in oversupply’.

But he said oil ‘would be unlikely to increase to $100 a barrel or more’ any time soon.

Dudley also insisted that extraction in the North Sea remained a viable business but added that ‘it’s a particularly challenging area’.

Khalid al-Falih, the chairman of Saudi Arabian oil company Saudi Aramco, said oil prices have fallen too far and will recover this year.

The outlook for oil has been a hot topic in the Swiss ski resort of Davos this week – along with the prospects for the global economy.

Painting a bleak picture, Lew said: ‘I look around the world and there are a lot of headwinds.

‘We’ve seen very slugging growth in demand for some years now, and that’s led to a not-strong-enough global economy.’

But he added that investors may be overreacting.

‘I know it’s been bumpy days in the market, but I try to look beyond the hour to hour, day to day, to what the big trends are,’ said Lew.