What plummeting oil prices mean for you the consumer
THE FALLING PRICE OF A BARREL OF OIL – WHICH COULD GO AS LOW AS $10 THIS YEAR – HAS KNOCK-ON EFFECTS ON FUEL PRICES, GENERAL SPENDING AND ENERGY COSTS
If you ever went looking for evidence to prove that economists, analysts, journalists and so-called expert commentators haven’t a clue what they are talking about much of the time, you would not have to go much further than a quick glance at oil production and prices over recent years.
For many years up until the very recent past, there was much talk of Peak Oil and what would happen to our world when fossil fuels dried up. Then technology stepped in, production methods got better and oil started to emerge from the ground in places where it had previously been inaccessible. Suddenly all the talk was of a glut in supply and Peak Oil became a less hot topic of conversation – but it’s likely to return. At least for now. This glut in supply is either good news or very bad news, depending on which side of the environmental and economic fence you are sitting and how forward-looking you’d like to be.
In the early summer of 2008, as a barrel of crude oil reached $147 (€136) on international markets, much talk was of what would happen when a barrel hit $200. Before it could get close to that, Lehman Brothers came crashing down, taking the global economy with it. The economic shockwaves sent oil prices into a tailspin, which is starting to look like a death spiral.
Global oversupply and worries about the severity of the economic slowdown in China and the sluggish performance of normally high-consuming countries in the developed world are to blame for prices not seen since 2003. In the middle of last week, crude oil prices continued on their downward trajectory, having fallen almost 20 per cent since the beginning of the year. And prices at the beginning of the year were very low.
Analysts have been scrambling to make sense of it all and were forced to frantically adjust to the new year price rout. “A marked deterioration in oil market fundamentals in early 2016 has persuaded us to make some large downward adjustments to our oil price forecasts for 2016,” Barclays bank stated. “We now expect [a barrel of oil] to average $37 in 2016, down from our previous forecasts of $60 and $56, respectively.”
That is a fairly major “downward adjustment” but Standard Chartered went further – much further, in fact. That bank’s experts said prices could drop as low as $10 a barrel.
“Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the [US dollar] and equity markets,” its analysts said. “We think prices could fall as low as $10 before most of the money managers in the market conceded that matters had gone too far.”
But what does that mean for consumers in Ireland? If oil prices continue to fall, will we be winners or losers? Here are just some of the ways it has an impact.
1 The easiest-to-identify, real-time way oil prices affect us is on garage forecourts. Petrol and diesel prices have fallen significantly in recent months, although not perhaps by as much as many people would like. According to the fuel-tracking website pumps.ie, the average price of a litre of petrol in the Republic last week was €1.25, with many garages selling a litre for less than €1.20. Two years ago, according to the AA, the average price of a litre of petrol in the State was €1.53, and the price was €1.70 in September 2012.
What kind of savings are we talking about? Well, fuel usage figures from the AA suggest that an average car does about 19,000km a year. If it has a fuel consumption rate of 9.5 litres per 100km, it will use 150 litres of fuel per month or 1,800 litres a year. Based on these numbers, the average Irish motorist will spend €810 less on fuel this year than they would have four years ago.
2 If people are spending that much less on forecourts, they have a lot more money to spend elsewhere. This increased spending power boosts the wider economy and might go some way to explaining a 7 per cent increase in spending in the run-up to Christmas compared with last year. There are about two million private cars on the road, and if all of them made savings of about €800, that would see a net transfer of wealth back to Irish consumers of more than €1.5 billion over the next 12 months.
3 And the transfer and the savings might be even greater than that were it not for taxes and currency values. Oil is bought in US dollars, and Irish prices are dependent on the relative strength of the euro against the dollar. In recent times the news hasn’t been good. When oil prices fall, investors put money into safe havens such as the dollar, which has caused that currency to get stronger in recent months. The euro has lost about 20 per cent of its value against the dollar in the past 18 months, which has kept petrol prices higher than they might have been.
Fuel taxes have also done consumers no favours. Since the emergency budget of October 2008, there have been five tax increases on fuel. Together these have added about 20 cent to a litre of petrol. The excise duty of fuel is levied on a per-litre basis and not as a percentage of the price, which means that when the cost falls, the tax remains at the same level. VAT is charged at 23 per cent of the non-tax fuel price and does fall in line with other price falls. The vagaries of the tax system mean about 91 cent of every litre of petrol is taken up by tax, with the remaining 30 cent or so going towards everything else.
4 While forecourt prices might be on the frontline, the most profound impact of cheap oil prices is on the economy as a whole. No matter what the Government says, lower oil prices have contributed to our economic recovery and growth of 7 per cent in a period of historically low inflation. Ireland is an oil importer, and lower prices cut costs for consumers and businesses. However, falling oil prices could bring about deflation across Europe, which could have a serious long-term impact on growth.
5 Home energy prices have been falling over recent months, although price declines have been slower in this sphere than on forecourts. All the companies have rolled out price cuts in recent months and have been very anxious that we know all about it. But average gas and electricity bills have fallen by no more than €50 a year. That amounts to a decline of around 5 per cent, which is pretty meagre when you consider the actual falls in the cost of the raw materials.
Earlier this year, the Minister for Energy, Alex White, held a series of meetings with the energy suppliers to discuss the speed at which wholesale energy price reductions were being reflected in household bills. Not much changed after that. To be fair to White, prices are deregulated and there’s not much more he can do other than ask the question.
6 Falling oil prices have downsides. It might mean we have more money, but cheaper oil also means there are fewer incentives to develop cleaner alternatives to fossil fuels. In the 1970s oil prices spiked, which brought about massive economic disruption in developed countries, most notably the US. In turn that led to huge amounts of research into ways to save energy. Fast-forward 10 years and some of that research and development started to pay off. Cars and electricity generation became more efficient. And everyone benefited. If oil prices stay low, there is less incentive to develop cheap alternatives, which stymies research, and that will have knock-on effects that will be felt for a generation.
7 When oil prices are low, gas- guzzling SUVs sell well, whereas fuel-efficient smaller cars do not. Cheap oil makes it much harder to curb carbon emissions.
8 There might, however, be some environmental pluses. One of the reasons why there has been a surge in supply on global markets has been a dramatic ramping-up of production of shale oil in the US. This method of oil extraction is not only controversial, it’s also expensive. To make it profitable, such producers need oil to sell at more than $60 a barrel. When it sells for a lot less, this production method becomes much less attractive. There is a downside here, too. When incentives to develop new oil and gasfields disappear, there will be an inevitable reduction in R&D, which will lead to higher costs once oil prices rebound.
9 From managing dairy and poultry production to ploughing fields, agriculture is very energy-intensive. Lower oil prices benefit farmers, and ultimately that benefit gets passed on to all consumers in the form of cheaper food, at least once the middlemen in big retail have taken their cut.
10 There should be a drop in the cost of flights, although that has yet to happen in any meaningful way. One argument put forward by advocates of the aviation industry to explain why consumers have not seen any price cuts is that airlines buy their fuel far in advance, which leads to a significant time lapse in savings. However, the drop in oil prices has been sustained for more than a year, so that argument suggests that airlines all over the world are making more money than they otherwise might and are not passing on anything to consumers. Internationally, demand for airline seats is strong, so they are unlikely to start cutting fares, even though they could.
Supermarkets sales in Ireland grow at rate not seen since the boom times
SUPERVALU RETAINS TOP SPOT AS MARKET SHARE GOES BEYOND 25.1 %
SuperValu has retained its position as the number one retailer in Ireland. Sales growth has continued to accelerate over recent months and reached 4.3% over the past 12 weeks. The bounce took the retailer’s share of the market to 25.1%.
A happy Christmas for all the State’s major retailers saw the retail market grow by 3.5% over the festive season as shoppers relaxed their purse strings.
The latest supermarket share figures from Kantar Worldpanel in Ireland for the 12 weeks to January 3rd point to a strong uplift for the Irish grocery market resulting in overall market growth not seen since January 2009.
The new numbers show that just over 1% separates the market share of the most popular retailer and the retailer in third position.
SuperValu has retained its position as the number one retailer in Ireland. Sales growth has continued to accelerate over recent months and reached 4.3% over the past 12 weeks. The bounce took the retailer’s share of the market to 25.1%.
Tesco saw a marginal uplift in its sales taking its market share to 24.6%. Dunnes enjoyed a strong sales performance with an increase of 5.6% in its sales which saw its market share increase by half a percentage point to 24%.
Lidl enjoyed the strongest growth within the grocery market with sales 11.6% ahead of Christmas 2014 as an additional 44,000 people chose to shop with the retailer this year. It’s market share is now 8% compared to the 7.9% held by Aldi.
The director at Kantar Worldpanel David Berry described Christmas as the most important time of the year for grocery retailers.
“The past 12 weeks are the first time since March 2013 that all five of the major supermarkets in Ireland have grown sales,” he said. “Shoppers spent an additional €77 million on groceries compared with the same time last year, with confectionary, crisps and other snacks doing particularly well. “
Mr Berry pointed out that it wasn’t just party food that boosted sales and shoppers also spent more on staple items such as fruit, vegetables and eggs. “This is a clear sign of increased consumer confidence as shoppers worry less about what they’re spending,” he suggested.
This is the trait a women most desire's in their man
THIS IS THE TRAIT WOMEN DESIRE MOST IN A MAN?
It turns out that being a nice person who helps others out is a much more attractive quality for women than just being buff. Though the ideal man would be both attractive and altruistic, the study showed that for long term relationships the women preferred men who were just altruistic over men that were just attractive – meaning that altruism is actually a more valuable quality than physical attractiveness even when taken on its own.
In the study, women were presented with images of men acting in bravery or kindness including things like saving drowning child or buying a homeless person a sandwich. Interestingly the researchers discovered that girls were more likely to choose a guy who was considerate but not hot over someone who was handsome but not that kind. Attractiveness plays a part, with partners of equal attractiveness and kindness being the most popular.
So if you want to secure a few dates then try volunteering at your local soup kitchen or helping an old lady cross the road. Full story: Science has just proved that nice guys don’t finish last: City A.M. Although when it came to one-night-stands, looks were more important than a caring personality. Altruism, defined as the “unselfish regard for, or devotion to the welfare of others”, was found in the study to have a sizeable role in mate choice, particularly in women’s preferences and in long-term relationships.
The study, published in Evolutionary Biology, gave women scenarios about men, and then asked them to rate their attractiveness. ‘Overall, the results provide further support for the view that altruism acts as an important trait in mate choice, particularly for long-term relationships’
Will people lose weight if labels show how long it takes to burn off calories?
It’s one thing to know how many calories a chocolate bar, bag of chips, or serving of mac and cheese contains, but quite another to know how many minutes of exercise it would take to burn it off. Will it take 20 minutes to 50 minutes? Even longer?
Adding that information to food and drink labels could help people avoid packing on the pounds, according to a policy paper published Friday by the Royal Society for Public Health. The British health agency found that introducing “activity-equivalent calorie labels” helps people stop underestimating how long it will take them to work off something they’ve eaten.
The need for the labels is certainly there: Nearly 2 billion people worldwide are overweight or obese, according to the World Health Organization.
“Although nutritional information provided on food and drink packaging has improved, it is evident that it isn’t working as well as it could to support the public in making healthy choices,” said Shirley Cramer, the chief executive of the society, in a statement. “Activity-equivalent calorie labeling provides a simple means of making the calories contained within food and drink more relatable to people’s everyday lives, while also gently reminding consumers of the need to maintain active lifestyles and a healthy weight.”
The health organization shared sample images of the labels, which show consumers how many minutes they’d have to bike, swim, or run if they choose to eat a particular item. People can then decide whether noshing on a bag of potato chips is worth 19 minutes of running, 23 minutes of cycling, or 13 minutes of swimming.
A survey of 2,000 adults by the society found that 63% would support the introduction of activity-equivalent calorie labels. More than half of respondents said seeing the labels would change their behavior.
The public health experts wrote that people spend about six seconds looking at the package on a food item before they toss it in their shopping cart. Although some folks may be checking for sodium content or for the grams of fat in an item, the society’s researchers wrote that people are “most likely to look for total calories on food labels, rather than other forms of nutritional information.” To take advantage of the focus on caloric intake, the organization recommends that food companies alter the front of packages so that consumers can make informed decisions.
WhatsApp is now to become a free app
THE WORLD’S MOST POPULAR MESSAGING SERVICE, WHATSAPP, IS DROPPING ITS TOKEN US$1 FEE STILL LEVIED ON SOME USERS AS IT EXPERIMENTS WITH MAKING BUSINESSES PAY TO REACH THEIR CUSTOMERS, CHIEF EXECUTIVE JAN KOUM SAID ON MONDAY.
In addition, the Facebook-owned communications service expects in the coming months to offer complete encryption of messages, in a move to ensure the privacy of user conversations that is likely to draw further criticism from some governments.
The authorities in the United States, Britain and elsewhere say the growing prevalence of encryption on services such as WhatsApp and Apple’s iMessage, hamstring their ability to monitor criminal suspects or thwart militant plots and have threatened to pass new laws to block these changes.
WhatsApp, the service that offers free text, picture and video messages, has been slowly working to develop end-to-end encrypted communications services for more than a year. It has already introduced full encryption for users on Android phones.
“We are a couple of months away from calling it done,” Koum said, noting that once completed, WhatsApp will represent the world’s largest service offering completely private messaging. “Soon we will be able to talk more about this,” he said.
Once fully introduced, WhatsApp will be the largest encrypted communications service in the world, he noted.
The seven-year-old company, which was acquired by social media giant Facebook for $19.2 billion in 2014 and now counts nearly 1 billion users, is testing making restaurants, airlines and credit card firms pay to contact consumers.
“Today, we are announcing that WhatsApp is going to be free to users. We aren’t going to charge a dollar a year anymore,” Koum told an audience of entrepreneurs and investors at the annual Digital-Life-Design (DLD) conference in Munich.
He said making customers pay even small amounts remains difficult in many countries where access to credit cards and bank accounts for making online payments remains complicated.
Instead, Koum said it will begin experimenting this year to simplify how businesses interact with consumers.
New Irish flooding body will be able to propose laws
THE RIVER SHANNON GROUP AIMS TO TACKLE FLOODS AS COST OF STORM DAMAGE REMAINS UNCLEAR
The Minister for the Environment, Community and Local Government Alan Kelly following a briefing with the National Coordination Group.
The body tasked with overseeing the river Shannon will be given powers to recommend legislative changes to Government,
The draft terms of reference for the Shannon River Basin Management Co-ordination Group are to be agreed by Government this week.
It is understood the body, which will be chaired by the Office of Public Works (OPW), will meet on a quarterly basis and will be answerable to the relevantOireachtas committee and the Cabinet’s subcommittee on climate change.
The group will publish its work programme for the river Shannon and will be tasked with overseeing the delivery of 66 flood plans.
No talking shop
The most significant power it will receive will be the ability to request legislative or regulatory changes if required.
A Government source said: “For those who called it a talking shop they are wrong.
“If this group believes that there is not adequate laws or adequate regulation it can recommend change.
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“It will be a new co-ordination committee which will be accountable to an Oireachtas committee and to a Cabinet committee. It will have to publish the minutes of its meetings.”
The group was established by the Taoiseach in response to the flooding crisis.
A number of representative groups are to sit on the body, including local authorities, Bord na Móna, ESB and the National Parks and Wildlife Service.
The exact cost of the damage from the series of storms has yet to be compiled. Minister for Transport Paschal Donohoe is to bring a report to Cabinet in the coming weeks on the extent of destruction of infrastructure.
The initial cost was nearing €60 million, but it is expected the bill will rise significantly.
Local authorities are due to make their costings available to Minister for the Environment Alan Kelly later this week.
The Government has already agreed to allocate €18 million to assist the clean- up, but the extent of the damage is still not known.
Insurance issue.
It is also expected the interim report on flood insurance by the OPW will be considered at Cabinet next week.
Mr Kelly is also to travel to Brussels this week to meet the European Commissioner Karmenu Vella to discuss the response to the floods.
However, it is understood Ireland will not qualify for emergency EU funding due to rules requiring the total damage to amount to 0.6 per cent of gross national income.
As water levels continue to recede following the flooding earlier this month, a number of roads in Clare have reopened.
All roads in Springfield, Clonlara, are now passable and the N67 at New Quay has reopened.
An indication of the possible cost of the damage comes from the February 2014 storm, which insurers put at €111 million.
The storms of December 2013-January 2014 cost €46 million, while the October 2011 flooding cost €127 million.
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