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Monthly Archives: July 2008

US weekly stock data red herring?

The weekly US petroleum stock data report that is published on wednesday is a snapshot of stocks at a fixed point in time, to be meaningfull it needs to be monitored over a period of weeks, to do otherwise is a recipe for knejerk reactions.

Yesterdays report was a case in point revealing a surprise 3.5 million barrel drop in gasoline inventories against an expected 400,000 barrel build. Some traders interpreted this as evidence that recent price falls had got Americans driving again.

Conversley crude inventories increased by 2.4 millon barrels rather than the 1.3 million barrels expected. Distillates were predicted to build by 1.8 million barrels but actually managed 2.4 million barrels which exposes the highly paid pundits often shaky arithmetic which has latterly fuelled the markets feeding frenzy.

It would seem that recently the often desperate scrabble for excuses to hike prices has run out of road while daily the increasingly dire financial data is delivering a brutal reality check to a market that was rapidly  losing the plot.

Brent crude opened on wednesday at $122.57 sheddding $0.07 to close at $122.50 but forward prices did advance well in excess of $4 per barrel across the board.

BO-PEEP IS ON A ROLL.

This mornings announcement of BP’s humungous quarterly profit seemed to get the media into a frenzy and is guaranteed to give the majority of motorists a nervous tic. The profit is evidence that the upstream oil sector has done very nicely thankyou from the long oil price bull run. A fair proportion of this profit will however need to be reinvested in ever more difficult and costly exploration and production development projects to maintain future production momentum.

The real mess is in the less profitable downstream retail sector where there is a distinct lack of pricing transparency which borders on corruption. The price spread on retail forecourts can typically be as much as 10ppl depending on location.

Small independent retailers have been squeezed, having to pay for stock on delivery and having lower throughput volumes therefore lower profitability than larger major owned or supermarket sites. It would appear that supermarkets get up to 50 days credit on their fuel, selling for cash thats pretty good business even at razor thin margins. The resultant cash mountain on deposit would more than massage a thin margin.

The lack of pricing transparency is illustrated when fuel prices in Camborne- Redruth and Penzance are compared. Camborne-Redruth is a Tescopoly with 2 fuel sites and vitually no local opposition. In Penzance which is further from the supply terminal it would be natural if prices were slightly higher. Not so because in Penzance Tesco are head to head with an adjacent Morrisons store and prices are around 2ppl lower than where Tesco enjoys a near total supply monopoly.

Then there is the cynical con of spending a set amount in store to obtain a 5ppl discount on fuel which does not normally return a 5ppl margin, it necessarily follows that any fuel in this instance must be sold at a loss. Again probably not so because in store margins will be discretely adjusted to cover the situation, its only rarely that an average motorists will take more than 50 litres of fuel so it is easy to factor this into the overall crafty equation as the supermarkets continue to laugh all the way to the bank.

Another increasing event reported by the AA is the number of motorists they are assisting who have run out of fuel while searching for the cheapest fuel. This clearly illustrates the stupidity and shallowness of a significant sector of consumerism who unwittingly waste more than they stand to save by driving miles for the “cheapest ” fuel. I REPEAT MY OFT QUOTED MANTRA “THE MOST EXPENSIVE FUEL IS NO FUEL”

On the other hand the cruellest most cynical rip off of the lot must be those awful monopolies that operate on motorway services who when challenged cite high operating costs to justify their 5 or 6ppl over the odds prices. They are very high volume sites so even very stiff operating costs are spread thinly over tens of millions of litres per annum so pull the other one. As the motorway service areas are apparently leased from the Government is it ultimately the Governments fault???

THATS CAPITALISM FOLKS YOU PAYS YER MONEY AND TAKES YER CHOICE!

Monday saw Brent crude open at $124.56 gaining $1.28 on the day to close at $125.84 still a darned sight better than three weeks ago. The usual tired twaddle about Nigeria and Iran was peddled to justify the small increase which was probably more to do with slowing the markets recent rate of descent.

While things are looking better in the past couple of weeks anything can still (and probably will) happen.

The Holman Legacy.

 

Neccessity being always the mother of invention, Cornwalls once mighty mining industry gave us our engineering traditions. The world renowned Camborne rock drill manufacturers Holman Brothers once employed 3500 men in the town. The company also produced compressors and a subsidiary Maxan Power was a leader in pneumatic control systems. The works included its own foundry and drop forge within a distinctive complex that once defined the town.

 

In its heyday Holmans was a paternalistic operation that offered jobs for life with sons following fathers into highly skilled trades via an indentured apprentiship scheme that is now so sadly lacking in this age of NVQ’s.

Regretably like most worthy institutions with long standing principals and traditions the firm became infiltrated by outside investors looking for a fast buck by streamlining and asset stripping. A spiral of decline that started in the 1970’s saw the slow decline of the company over a protracted period, wave after wave of redundancies eventually led to its demise. The main site is now a Tesco store (one of 3 in a  3 mile radius).

Sad as this tale of decline may be this former powerhouse of Cornish engineering has left a tenacious legacy which whilst little known outside its own community continues to thrive embracing world class technology tempered with traditional expertise. Phoenix like from the ashes has risen a cluster of small but  highly specialised engineering companies founded, run and largely staffed by ex Holman men.

This was highlighted by a function I was priveliged to attend last week put on by a customer on our neighbouring industrial estate to formally commission a brand new state of the art Flow water profiling machine. This incredible item will cut any material up to 500mm thick with an 87000 psi water jet absolutely precisley.

Lasermaster is part of a group run by John Gotts which supplies carpet cleaning machines and operates a laser profile cutter. ThIs expensive piece of kit originally came from a company that having had considerable RDA grant assistance because it moved into part of the old Holman works from outside Cornwall still managed to fail spectacularly.

 The success of this acquisition from the recievers at a knockdown price highlighted the need for the additional versatility the brand new machine would bring to the thriving operation.

Thus we duly assembled at Lasermaster to see Mark Prisk MP shadow minister for Cornwall formally start up the new machine. Mark Prisk is certainly putting in some time getting to know local businesses which is very encouraging given the scant attention Cornwall gets from national politicians latterly.

The really interesting thing was that most of the guests were ex Holman apprentices now running the cluster of engineering firms previously mentioned.

Another interesting diversion was an example of Cornwalls own sports car the JVAN R1 built by Jvan Smith in a workshop at Bochym on the Lizard. This very basic but stylish achetypal speedster sports a Renault derived engine and will do 0-60 in 3.4 seconds if you have the nerve. Many of its components are produced by John Gotts via Lasermaster reinforcing the nature of the local network.

How nice to see quiet sustainable success so apparent in our midst during difficult times when the Jeremiahs all around us only see doom and gloom unless an enterprise is tourism focussed. Even more so when few of these firms qualify for much in the way of grant aid when incoming firms that subsequently fail seem to have money chucked at them like confetti.