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Original article
In this week’s Commercial Awareness update, we discuss why oil prices are dropping, the future of the British high street, Disney plus, technology in the banking sector and why America is importing more from China.
What’s next for the oil industry?
After months of rises in the price of oil, there has been a 20% drop since the start of October. The price of brent crude fell below £70 per barrel, after experiencing a high of over $85 just last month. The demand across the globe has dried up recently and the price reflects this - the Organisation of Petroleum Exporting Countries (OPEC) has been increasing supply, but worries about lower economic output has quelled demand. Also, many expected Iran’s supply to be taken out of the market due to America’s new sanctions on the country - this hasn’t been the case as America gave exemptions to some of Iran’s biggest customers, in the short term at least.
On Sunday, Saudi Arabia announced that their state owned oil company, Saudi Aramco would cut their supply by 500,000 fewer barrels per day in December. News of this immediately caused the price of brent crude to jump 2%. Usually O,PEC is united on matters of supply, but on this occasion R,ussia is less sure that the market would be oversupplied in 2019. Last week, Russia’s largest oil producer, Rosneft announced that it had tripled profits last quarter, citing higher prices and output compared to last year for their improving fortunes. They had increased production in the quarter by 3.4% year on year. Despite this, it’s likely that Russia will follow suit with Saudi Arabia and cut production, but it will be interesting to see what happens to demand in the coming months.
On a domestic level, Asda, Morrisons and Sainsbury’s have all cut prices at the pump, so drivers will pay up to 2p per litre less for their fuel. They were being accused of not passing on lower costs onto the customers, but have now responded after pressure from bodies like the RAC.
The future of the high street
According to accountancy firm PwC, around 14 shops are closing every day in what is the toughest time for the high street in years. In the report, it showed that a net 1,123 stores closed in the first six months of 2018. The fashion sector and electrical stores were the worst hit, as it has become easier and often cheaper to shop online. Restaurants and bars are also struggling, especially high street chains like Prezzo, who are still struggling despite closing 100 restaurants. Again, the changing nature of consumer habits and technology, making it easier to order food home has made eating out less popular.
This report comes a week after another report highlighted the rise in numbers of fast food outlets and betting shops on the high street. They scored how unhealthy Britain’s high streets are based on how many fast food outlets,betting shops and payday lenders there were compared to shops and restaurants - Grimsby, Walsall and Blackpool were named as some of the unhealthiest. In the latest budget, Chancellor Philip Hammond announced he was committing funds to renovate the traditional high street - time will tell if this will do enough to encourage customers to go back.
Companies to watch
Disney
It has been a good week for Disney after they announced profits and revenues for the last quarter which beat analysts’ forecasts. They reported $12.78 billion in revenue, with stand out results in its studio business, which was 50% up on revenue compared to the same period last year. The share price jumped 2% on the news but it was the announcement surrounding their new streaming service which got markets excited. The service which will compete with Netflix is set to launch in the second half of 2019 - last week CEO Bob Iger announced it would be called Disney+. They recently acquired Twentieth Century Fox and a stake in Hulu, which appear to be part of their streaming service plan.
This spells bad news for Netflix given the increased competition, but boss Reed Hastings claims he welcomes the “healthy competition” from their next competitor.
Lloyds Banking Group
Britain’s biggest high street lender has confirmed that they will be adding 2,000 jobs to focus more on digital technology. As part of a £3 billion restructure they will be cutting 6,240 jobs, but creating 8,240 new ones. More of the jobs will be offered to existing staff, as they intend to retrain staff to bolster their technological offering. The bank plans to close 60 branches over this year, after cutting 54 last year too - this trend is set to continue as more customers prefer to do their banking online. The restructuring plan was announced after the government sold off their stake in the bank and will take until 2020 to complete.
Johnston Press
The owner of Daily Mail, DMGT is believed to be making an offer for Johnston Press’s i newspaper. After buying the paper from the Independent two years ago, Johnston Press put itself up for sale in October as its debt is increasing and advertising revenues are decreasing. The regional publishers share price rocketed 16% this Monday on the news of the potential purchase. They bought the i for £24 million but has seen its readership decline over the last two years - in August this year it was down 10% compared to the last.
There appears to be a number of parties interested in buying the i, so keep an eye out for a likely sale in the coming weeks.
A rise in Chinese exports to America
Much of the media and this update have been speculating the impact of the so-called ‘trade war’ between America and China; and how things will operate now there are tariffs on trade. Many worry about the effect it will have on the Chinese economy, which has been cause for concern across the global market in recent weeks. One thing that potentially wasn’t expected is that exports from China to America actually rose 16% in October compared to the previous year. Many attribute this to the tariff rise scheduled for the new year (going from 10% to 25% on some goods ) - so, companies are bulk buying goods before they get more expensive. Also, the Chinese currency, the yuan has dropped around 9% against the dollar in the last eight months, making goods from China more competitive.
And finally...
This week's Commercial Awareness update is proudly sponsored by Deutsche Bank. At Deutsche Bank, your ideas have impact. As Germany’s leading bank, with a strong position in Europe and a significant presence in the Americas and Asia Pacific, they’re proud to drive change and innovation in the industry. That’s why they're looking for creative, curious and strategic thinkers who are ready to make a difference from day one. View their roles.