Any other business

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

25 August 2016

1:00 PM

25 August 2016

1:00 PM

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.’ Executives just four years into their careers command base salaries of up to £150,000, and ‘managing directors’ (of whom every firm has dozens) up to £600,000. But at RBS — ‘now the City’s biggest hire-and-fire shop’ — the base scale is even higher: up to £1 million for a junior director and £1.5 million-plus for an MD. ‘Total madness,’ says my informant.

I agree, and not only because I’ve always thought the EU bonus cap (promoted by socialists in the European parliament) was an unwarranted interference that was always going to have perverse results. It’s my simple view, held since I was myself a City insider and would-be whistle-blower long ago, that the prospect of life-changingly high rewards for no personal risk more often leads people to behave worse than to perform better.

So I’m intrigued to see that fund manager Neil Woodford has decided to scrap all bonuses for the staff of his investment firm because, as his colleague Craig Newman put it, ‘Bonuses are largely ineffective in influencing the right behaviours… There is little correlation between bonus and performance and this is backed by widespread academic evidence.’ Good to see sanity creeping in, even before Theresa May has had time to sink her teeth into the topic.

What universities need

For those who have been following my strand about tech start-ups and future unicorns, the most interesting news of the week was a £75 million capital-raising for Cambridge Innovation Capital, a venture fund that was launched three years ago under the auspices of Cambridge University and hopes to float on the stock market. CIC has so far made 13 investments in fledgling firms born in university labs or the adjacent ‘Cambridge cluster’, in fields ranging from DNA decoding to music software. An early backer of CIC itself was Arm Holdings, the microchip designer recently bought by SoftBank of Japan, and a new investor is none other than Neil Woodford, mentioned above.

All this presents an excellent mechanism for commercialising our world-class brainpower by recycling capital accumulated among earlier cohorts of entrepreneurs. The UK pioneer was Imperial Innovations, originally the ‘technology transfer office’ of Imperial College London, which floated on the Aim market in 2006 and has holdings in 93 ventures. Every university should have one of these vehicles. Indeed I’d go as far as to say that — as a condition of the continuing post-Brexit research funding about which the higher education sector is currently in a froth — universities minister Jo Johnson should make it compulsory.

Au revoir

One last item on French restaurants before I leave for home. La Récréation at Les Arques (Lot) — a hamlet that’s also home to a museum of the Russian-born expressionist sculptor Ossip Zadkine — offers an idyllic Sunday lunch in a shady courtyard that was once a school playground. You can read about it in Michael Sanders’s book From Here, You Can’t See Paris — but can I conjure a parable out of it? Of course I can. Here is a thriving husband-and-wife venture (Ludovic and Maria Soupirot have succeeded founders Jacques and Noëlle Ratier) that has brought life to a redundant rural schoolhouse with no other nearby businesses, and made good jobs for young chefs and front-of-house staff — so a fine example of creative regeneration. And that’s all for August’s gastro-economic theme, except to throw in the name of my equally idyllic homeward stop: L’Auberge du Val au Cesne, in a verdant Normandy glade south of Yvetot. A la prochaine visite!

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