Belfast Telegraph

Wednesday 23 April 2014

Oil price surge leaves businesses over a barrel

Oil prices have soared to a two-and-a-half year high, piling pressure on businesses of all kinds already facing difficulties in a tough economic climate.

The cost of a barrel of Brent crude from the North Sea was $119.95 yesterday, the highest since August 2008.

Political turbulence in Libya is the main reason for the pressure on prices, with fighting between Gaddafi's forces and rebels keeping the country's oil exports away from the market.

US crude went up to $108.74 in the morning, a peak since September 2008 when the collapse of Lehman Brothers shook the global economy.

Unrest in other parts of the Middle East, particularly Yemen, is also contributing to unease.

A note from Dow Jones said: "Although Yemen is not a major oil producer, traders remain edgy over the prospects of tensions stoking supply disruptions elsewhere in the region."

A suggestion that the economy of the world's biggest oil consumer could be recovering after the US Labor Department said employers added 216,000 jobs in March, has also driven up prices.

Roger Pollen, head of external affairs at the Federation of Small Businesses, said rising prices put small firms under pressure from different directions.

"Businesses in Northern Ireland use more oil because of the many rural locations of Northern Ireland and the fact that gas is not available in all areas.

"The other side of things is the effect it has on customers. The more that it [the price of oil] goes up, the less they have to spend on products and services."

But he said there were things which businesses could do to mitigate having to spend more on oil.

"The Carbon Trust spoke to us about how companies can use less energy, and even gave us examples of how small engineering companies can cut their consumption by 20%.

Northern Bank chief economist Angela McGowan believes geopolitical pressures on oil could multiply in the short-term.

"The next thing to watch out for in the oil markets could be Nigerian elections in the next few weeks - the threat of disruption to Nigeria's 2.2m barrels a day is currently not incorporated into prices," she said.

Transport firms are among those most directly affected by the present high.

John Jenkins, managing director of Northern Ireland Volvo truck dealer Dennison Commercials, said distribution firms were struggling with the burden of high oil prices.

"The public do not understand that we are an island economy and heavily reliant on road transport," he said.

"Everything we buy, consume and use is delivered by road transport.

"We have customers who are locked into contracts for supply of those products through road transport trucks.

"They don't find it easy to pass those costs onto the end customer."

But he said new technology for emission standards could help truck drivers become greener and more economical.