Councils to buy oil futures

September 05, 2008 10:44 AM

Today's FT reports that Kent County Council is spearheading a move by local authorities to pool resources to buy fuel in the futures market. With local authorities spending over £2 billion of our money on fuel each year, excluding petrol and diesel bought by private contractors, there is clearly scope for significant savings to be made. As the FT points out, if local authorities had bought oil on the futures market a year ago at $71 a barrel, for delivery this month, they would have saved about a third compared with yesterday's spot price of $108 a barrel. 


Unfortunately, that's exactly the problem with this proposal. Oil has gone up and councils have missed the boat. It's a bit too late to hedge now; indeed, councils would look silly if they bought now and oil continued to decline in price. That said, preparing for future shocks may be a sensible idea.


But here we come up against the age-old problem. Government departments, public bodies and local authorities are completely useless at getting good value for taxpayers out of their purchases. Remember Gordon Brown selling gold at the bottom of the market? Is it so silly to imagine councils buying oil at the top?


There really is little substitute for saving money on fuel the way ordinary families are having to right now - reducing unecessary car journeys and turning the heating down. Is that too much to ask from our local authorities?

Today's FT reports that Kent County Council is spearheading a move by local authorities to pool resources to buy fuel in the futures market. With local authorities spending over £2 billion of our money on fuel each year, excluding petrol and diesel bought by private contractors, there is clearly scope for significant savings to be made. As the FT points out, if local authorities had bought oil on the futures market a year ago at $71 a barrel, for delivery this month, they would have saved about a third compared with yesterday's spot price of $108 a barrel. 


Unfortunately, that's exactly the problem with this proposal. Oil has gone up and councils have missed the boat. It's a bit too late to hedge now; indeed, councils would look silly if they bought now and oil continued to decline in price. That said, preparing for future shocks may be a sensible idea.


But here we come up against the age-old problem. Government departments, public bodies and local authorities are completely useless at getting good value for taxpayers out of their purchases. Remember Gordon Brown selling gold at the bottom of the market? Is it so silly to imagine councils buying oil at the top?


There really is little substitute for saving money on fuel the way ordinary families are having to right now - reducing unecessary car journeys and turning the heating down. Is that too much to ask from our local authorities?

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