False dawn for Opec’s return

IF ANYONE had any doubts that one of the main factors behind share market weakness has been the plunge in oil price they will now have been dispelled.

The faint possibility that somehow the power of the Opec oil producers has been restored, after reaching a deal with Russia and talking to Iran, was enough to send crude prices up 7pc and inspire a rally in share prices after a miserable start to the year.

Before anyone becomes overexcited by the prospect of a return to some kind of normality in highly volatile markets it is worth looking at some of the fundamentals.

Firstly, Opec plus a few extras have not agreed to reduce production but only to hold it at January levels. That essentially bakes in the cake a world surplus of about 1m barrels a day.

So unless there is a miraculous turnabout in the China and confidence around the world soars there is no reason to think that demand will soak up the excess.

Then there is the geopolitics. Yes, Iran did sound more friendly to the Opec-Russia move in the latest talks in Tehran. But the reality is that after years of being forced to restrict supplies, cutting off access to traditional Southern European markets, the likelihood that Iran is going to hold output is unlikely.

Iran needs every cent it can raise from the oil markets to pay for its Western buying spree which includes the not inconsiderable purchase of 114 Airbus jets.

Similarly, recent history tells us deals involving Moscow and the energy market are seldom worth the paper they are written on.

Russia currently is a rogue state at war in Ukraine and Syria where it is simultaneously at odds with the West, Saudi Arabia and the Gulf states. That does not look like the background to a lasting pact.

None of the activity by the traditional oil powers takes account of the gas and shale revolution in the United States which is at the core of the current surplus production.

Low oil prices have made some drillings uneconomic and in turn created problems for banks.

But the spigots have not been turned off and oil and petroleum is being stored in vast quantities.

Closer to home traders in petrol are storing fuel in tankers off the coast of Europe. Reports from the shipping market say that at least three long-range tankers have been booked for storage this week for petroleum as tanks in Rotterdam and elsewhere are full.

None of this suggests the plunge that brought oil prices down from $115 a barrel in mid-2014 to $30 a barrel last month is about to end.

Having campaigned for months for lower petrol prices at the pump, and finally seen them drop to 99p a litre in the UK, the AA has now joined the anti-Brexit camp. It claims that households face extra bill of £500 a year if Britain were to leave the EU. It makes the foolish and irresponsible forecast that sterling would fall by 20pc, causing imported energy prices to soar.

There is certainly likely to be volatility on foreign exchanges and the Bank of England has reported on that. But with the world filled to the gunnels with cheap oil and petrol the motorist has less to fear than at any time in living memory.

The AA should confine itself to breakdowns and selling insurance (its main business) if it wishes to maintain any kind of credibility.

Cheap as chips

UNDERESTIMATING the tenacity of Glencore chief executive Ivan Glasenberg is a mistake.

As someone who has spent his life trading he looks to be doing a better job of repairing a heavily indebted balance sheet than some of his mining cohorts in the higher echelons of the FTSE.

Credit ratings agency Moody’s may have downgraded Glencore debt to a notch above junk in January, but that has not stopped the commodity giant rescheduling some of its loans at remarkably favourable rates.

It is replacing an existing £5.9bn facility, negotiated in May 2015, with a new £5.4bn credit line.

What is remarkable about this credit is that market sources suggest that the competition for business is so strong that it is going to pay less than one per cent.

If that is really the case then it tells us much about the pressure on bank margins. No wonder shares in so many banks are trading at way below asset value.

Bad hair

TRAVELLING beside a London bus my eyes were drawn to an asterisk and small print on the door of the vehicle. It contained the mysterious and inelegant phrase ‘vs unclean hair and non-conditioning shampoo’.

On further inspection, a huge commercial covering the whole side of the bus declared that Tresemme shampoo (a Unilever product) was two times better in delivering smoother and more glowing hair – followed by the asterisk related to the small print.

So that’s what they mean about truth in advertising.