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Investment view

As silly seasons go, this has been about as silly as you can get. Aside from new fund management companies with provocative names and four-legged, beer-swilling town mayors, I see that a lead story in the Financial Times last week concerned criticism of the ability of the chairman of Shell, one of Britain&#39s biggest companies, to communicate with shareholders. I cannot make up my mind whether this is a reflection of the lack of real news or a rather more sinister development in the way in which institutional investors view company managers. It was interesting that the story came out on the same day BP announced it was to raise the price of petrol at the pump. At the time, this received hardly a mention but it is important news.

As this is the first increase in the price of petrol for a little while, it may have escaped your attention that crude oil has been gently trending up over recent weeks. Many observers put this down to a war premium now attached to the price of the black stuff – perhaps hardly surprising as the tone of comments coming from the Bush administration are leaning towards “when” the attempt to topple Saddam Hussein will be made, rather than “whether”. And all this comes at a time when there appears to be a growing split between the US and one of its traditional Middle East allies – Saudi Arabia.

Stories abound that billions of dollars have been withdrawn from the US by Saudi investors stung by the growing belligerence of the Bush administration towards Islamic nations. In reality, the repatriation of Saudi assets probably has as much to do with the decline in the value of the dollar and the poor performance of American financial markets. Still, it is a worrying development at a time when the geopolitical dimension continues to undermine market confidence.

In a way, we should not be surprised at these developments. There is something of a dual standard operating in the way in which America turns a blind eye to aspects of how Saudi Arabia is governed in order to remain supportive of a nation they consider of crucial regional importance. That regime may not be as oppressive as some operating in neighbouring countries but it is hardly a model of a Western-style democracy. And it will not be lost on either side of the argument that 15 of the 19 hijackers involved in those terrible events of September 11 last year were Saudi nationals.

But to return to the soaring price of oil, the contradiction here is that demand is actually fairly muted at present. The US economic recovery is hardly building up a head of steam and activity elsewhere is sufficiently subdued to keep demand at a level unlikely to support a price above the preferred Opec range. Statistics concerning US oil inventory levels had suggested that oil may be running low, with the American Petroleum Institute reporting stocks to be lower than at any time during the past 17 months. Figures released last week, though, suggested crude supplies were rising again.

Oil companies remain an important component of private investors&#39 portfolios. Indeed, Shell and BP must be among the widest-held shares by retail investors. While there is no doubt that a rise in the oil price will help profits, they are not as dependent upon the crude price as once they were. Still, the price we pay at the pumps will influence the level of inflation, so we would be wrong to ignore what is happening on world oil markets.


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