Roddy Graham's Blog: 11 September 2008 - Hell of an economic year
11 September 2008
Roddy Graham is chairman of the ICFM and commercial director of Leasedrive Velo
What can you say except that we are having one hell of a rollercoaster economic year. It almost makes it impossible to plan but it also reinforces the need not to panic and to navigate a steady path through troubled waters.
Take the price of oil. At the start of the year, the fear was that it would break through the $100 ceiling. It did to such an extent that talk was rife of it doubling in price by the end of the year to $200! Prices hit a record $147 a barrel in July and, as we have seen in both the new and used car markets, drivers have been trading down from large capacity vehicles to smaller, more fuel-efficient, lower CO2 emitting models to reduce the drain on their financial resources.
On September 9, the price of oil dropped briefly below the psychologically important level of $100 per barrel, Brent crude touching $99.30. That's still 50% higher than last year and nearly 10 times what it was a decade ago.
Then yesterday, it rose again to settle at $103 after OPEC surprisingly decided to cut production by 520,000 barrels a day to avert a further drop in the price.
Prices had originally gone up due to demand, a weak dollar and the absence of Iraqi supplies and geopolitical concerns. Speculators also contributed to sky-rocketing prices. Now that the US dollar is stronger and demand worldwide is lower thanks to the credit crunch, prices have fallen.
Latest Treasury forecasts suggest the average price of oil in 2009 will be around $93 dollars. That means pump prices should come down further. The latest drops in oil prices have yet to be fully reflected in prices at the pumps. They apparently take four to six weeks to filter through. However, UK drivers won't see the full benefit because of high fuel duty and the weak pound.
We've gone from 'disaster' forecasts last week to 'cautious optimism' this week. The Bank of England now expects inflation to peak at 5.1% and then fall below 2% in the second half of 2009. In the USA, we had the US Treasury nationalise Freddie Mac and Fannie Mae and the stock markets rose only to fall again on news of Lehman's record £2.2bn loss.
What we don't need 'experts' to tell us is that a) it's still going to get tougher before it gets better, b) we had better batten down the hatches and be prudent in our spend and c) we've had one hell of an almighty wake-up call concerning our Earth's natural resources and must conserve them better going forward. That still means driving around in smaller, more fuel-efficient, less pollutant vehicles. If your glass is half full, it means we should come out of this latest round of economic woes with a stronger perspective on life. Namely, look after our resources, protect our environment and speculate less, especially on our own home buying. After all, a home should fundamentally be a roof over our heads, not a speculative investment vehicle. Let's hope so anyway.
It's been a real see-saw week.