Cretins, Cretins

You knew this was coming of course:

The Chancellor has demanded a meeting with the energy regulator to explain why fuel prices have risen so dramatically,

Having a lawyer as Chancellor is going to cause such things. An ignorance of how markets work (err, you have seen that oil is around the $100 mark Alistair?) isn\’t a great qualification for that office.

This is worse though:

Some experts believe that energy companies can buy reserves in advance and that there is no need for the price rises in raw materials to be fed through to consumers at once.

That companies can make long term contracts is true: but that doesn\’t mean that price rises should not be fed through. It\’s pretty much a basic thought that you should sell your products at their replacement costs, not their actual costs. Indeed, all energy companies do this: it\’s why BP and Shell\’s profits soar when prices rise and fall dramatically when they fall. Because they value the oil in process at what they can sell it for, not what they paid for it.

2 thoughts on “Cretins, Cretins”

  1. The oil price in dollars is not what matters for the UK energy market – that’s the oil price in sterling. In fact as sterling has been weakening this reinforces the point ( in fact has anyone mentioned that it went above £50 for the first time in history?)

  2. Try that with house prices:

    “Some experts believe that home owners can buy houses in advance and that there is no need for the price rises in housing to be fed through to consumers at once.”

    Nope, I didn’t think so.

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