Uncommon Advice

The law of supply and demand shows that when a commodity has a greater demand then the available supply then the price will go up. We also know that company boards are put under pressure to bring off double digit EBITDA growth in order to keep the shareholders happy. No one will argue with any of these two points.

Therefore I find it strange to believe that anyone thinks that these two immutable rules are going to somehow be overturned and that oil will return to past pricing levels.

It just isn't going to happen!

The days of £1 a litre at the pump are here to stay. In fact, I predict that we will see £2 a litre before long.

Look at it this way: you own a doll factory and charge £5 per doll. One Christmas a bright spark suggests charging £10 per doll, and to your surprise the price hike doesn't have any effect on your sales. Later that year there is a shortage in supplies of doll's hair so you have to increase prices to smooth over, but once again your sales are not affected. If, at the following Christmas, someone suggests increasing the price again, do you think you'd be scared, or would you see it as a way of getting even more profit?

I have seen the exact same scenario play out with beer over the last decade. In 1998, a pint would cost roughly £1.50. Many pubs ran £1 a pint nights as a promotion. On the odd occasion you would find a pint for less than a quid. £2 a pint was seen as "London prices". Now a pint costs around £2.50, the odd pub sells beer at £1.80, and £3.50+ is seen as "London prices". Yet the taps keep flowing.

In reality, prices are levelled off when demand weans - but this demand will never wean for oil. In fact, in the next decade, demand for oil will go through the roof. There are 1.3billion Chinese and Indians just about to reach the stage that the West came to in the 1950s and 1960s - the age of the Car.

The good thing about inflation is that it is not an "across the board" exercise. As the cost of oil sky rockets, other prices may stay the same. In order to free yourself from the pain, start thinking about relocating to a property closer to your place of work, or look into the possibility of working from home completely. Find out about electric cars or LPG. Whatever you do, don't let BP et al take more of your wage packet than they already do. Please let other people know about the news - £2 a gallon is not far off.