Fast-Tracked North Sea Oil & Gas Fields
Yesterday evening, news emerged that six North Sea oil and gas fields are set to be fast-tracked, exacerbating tensions with those calling for greater efforts to curb domestic production ahead of the UK’s 2050 net zero target. Rishi Sunak is reported to have asked Kwasi Kwarteng to accelerate the approval process for the fields in order to boost domestic production which some say has the reserves to power the equivalent of the whole of the UK for six months. While this has angered many of those seeking to ensure the UK’s commitment to green energy sources, these developments are indicative of many within Cabinet who are voicing concerns over the cost of net zero targets and wider energy security considerations.
Sticking with energy, BP’s latest results recorded the highest profit in eight years, with the energy giant achieving $12.85bn in profit for the calendar year of 2021 as economies around the world emerged from the pandemic and energy prices surged. Fourth quarter profits surpassed $4.1bn which was even higher than analysts expected at $3.9bn after oil rallied to seven-year highs in the final few months of 2021 and gas prices continued to climb. These latest figures are in marked contrast with 2020, where BP registered a loss of $5.7bn given the global collapse in demand for energy and this morning’s news leaves shares up around 23% from a year ago.
Expectations around BP’s profit levels led to renewed calls for the government to impose a windfall tax on energy firms operating in the North Sea. For example, in recent days the shadow climate change minister, Ed Miliband argued that the hardship felt by millions of households owning to rising energy costs should be offset by such a windfall tax. Moreover, Ofgem’s recent announcement to lift the energy price cap by 54% in April and the release of Shell’s profits last week (which soared to £14.3 in 2021) have further added to such calls for the government to alleviate pressure on households.
Moreover, while BP’s primary oil operations are in the North Sea, Alaska and the Gulf of Mexico, last year they also benefited from their investments in the Kremlin-backed oil group, Rosneft. Hence, owing to the ongoing geopolitical tensions in the East and growing concerns over Russia’s use of energy as leverage, there have been renewed calls for further scrutiny between the two heavyweights.
Europe’s Energy Security
Europe’s energy security again came into focus yesterday with the US and EU energy council discussing the urgent need to restore and diversity gas supplies on the continent as tensions around Ukraine mount. Standing on the stage next to Chancellor Scholz yesterday, President Biden also renewed his commitment to stop Nord Stream 2 in the case of Russia’s further incursion on Ukrainian territory. No doubt this was a primary point of discussion between Macron and Putin yesterday as the two met in Moscow for wider diplomatic negotiations. While Macron stated that a deal could be within reach, during his meeting with Biden on Sunday, the French President stressed that Russia would be unlikely to de-escalate unilaterally.
Peloton shares enjoyed a meteoric tail wind yesterday as they climbed the Col-de- Nasdaq despite hairpin turns throughout the year which have greatly damaged progress. This came after news emerged from the Wall Street Journal that both Nike and Amazon were considering takeover bids and saw Peloton’s shares rose as high as 31%. While some adjustments saw the stock closing around 21% higher than its previous close, yesterday’s gains put its market cap above $8bn. Nevertheless, yesterday’s trading window was a much-needed wave of optimism, given that their shares have fallen some 80% from highs last January when their market cap climbed to c.$50bn as consumers pivoted to home work-out durable goods during lockdowns.
UK House Prices
After data released from Nationwide last week suggested that house prices in the UK had risen at their fastest annual rate for 17years, yesterday data from Halifax indicated that house price growth was expected to slow significantly. Halifax reported that house prices grew 0.3% in the month of January, which represented the slowest month increase since June 2021. Nevertheless, while Halifax stated that house price growth would slow throughout 2022, they noted that wage growth remained lower relative to that of house price growth, hence representing significant barriers to entry for first time buyers. Hence, with some analysts estimating that post tax incomes will fall 2% this year and that the rising cost of living will eat into to people’s ability to save for a deposit, a potential slowdown in the housing market may alleviate some of the pressure for those getting onto the ladder for the first time.
There is little in the way of primary economic data out today, however on Thursday all eyes will be on US CPI data which is expected to surpass the current level of 7% that currently stands at a 39 year high.