Oil prices will drift down again as Opec fails to get its act together

How many Olympic medals did Opec win? The answer (though I’ll bet no one else has bothered to work this out) is 15, or an average of 1.07 medals per member of the world’s leading oil-producer cartel. That result — boosted, I should add, by the five-medal triumph of the Iranian wrestling team — compares with the now notorious aggregate figure of 325 for the EU, including Team GB’s 67. I highlight the contrast only to make the point that, as power blocs go, resource-rich Opec is piss-poor at managing its affairs to advantage: the indolent leadership of the Saudis (Rio medals: zero) and their permanent stand-off with Iran means timely and co–ordinated decisions rarely happen.

All this is by way of preamble to a quick look at the oil market, which has registered an August rise in crude prices from $42 to $51 a barrel, offering optimists another reason for post-Brexit cheerfulness. But I have to report that the surge — which may already be over — was based not on perky industrial demand but on speculation that Opec members, due to meet in Algiers next month, will decide to limit production in order to underpin prices.

The truth, however, is that the Saudis have actually increased production in order to defend their market share, while flows have also increased from Iraq and Nigeria and new wells have come on stream in the US. So the supply glut continues, the price is more likely to drift down again, the industry will continue cancelling or deferring exploration projects that require $60 a barrel or better — and Opec is no more likely to agree sensible measures to steady the market than to field a winning bobsleigh team at the 2018 Winter Olympics.

Sanity creeping in?

Among lively responses to my recent item on executive pay and the possibility of using state-owned RBS as an experiment in reducing it, this one from a senior City whistle–blower: ‘Are you aware that the situation is even more absurd than you say? Since the EU bonus cap [introduced in 2014, limiting bonuses to 100 per cent of salary or 200 per cent with shareholder approval] we all had our basic salaries raised to ridiculous levels to ensure no one loses out — which of course has the perverse effect that people work less hard and frankly care less about the performance of the bank.’