The Times’s City Diary cartoon said it all. Reading newspaper headlines saying “BP profits soar, Bank bailout latest”, one Treasury mandarin tells another: “We nationalised the wrong industry.” BP’s record profits of £6.4bn for the quarter to September, up 148% on last year and accompanied by a 29% dividend hike, were well received. “BP has done better than expected for the third quarter in a row,” said Dresdner Kleinwort’s Colin Smith, “pretty clear evidence that it’s more than just the oil price.” CEO Tony Hayward “has turned glitch-prone BP into a non-blooper major”, said the FT’s Lex. But some, as ever, weren’t happy. Labour MP John McDonnell said he’d be asking parliament for price controls and profit windfall taxes.
But “where’s the windfall?” asks The Guardian’s Nils Pratley, “BP made a £91m loss from UK petrol stations, so it’s hard to demonstrate there’s profiteering at the pump”. Moreover, just 8% of its profits on production were made here. What’s more, “we’ve learnt the hard way that if there’s one thing worse than banks making too much money, it’s when the taxpayer has to rescue them”, said Neil Collins in the Evening Standard. “An oil company that cannot make massive profits in these conditions isn’t going to survive.”
Oil is heading down
And the good times have now passed. The oil price has more than halved since June as demand in the developed world has dwindled and Merrill Lynch’s Francisco Blanch warned that “we are also starting to see oil demand cracking in emerging markets”. Opec production cuts “won’t rescue it over the coming year”, said Deutsche Bank’s Michael Lewis. “We target $50/barrel next year.” So profit estimates for BP “could be too high for 2009-2010”, said Charles Stanley’s Tony Shepard. By then, windfall tax talk will have blown well away.