Petrol Crisis or ‘Negativity Bias’?

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Over the past few months, discussions around supply chain disruption and labour shortages have been in the COVID 19 recovery spotlight. In the face of an unprecedented set of circumstances, we have discussed service sectors unable to fill front of house staff positions and car manufacturers struggling to procure electrical components. The delays in supply keeping up as economies reopen is symptomatic of a return to normality, just as we start to go about life the way we used to, problems have emerged. Demand is recovering faster than supply, which will adjust, whereas new trends in the way we buy goods and services may prove more durable.

This week we have been presented with a “fuel crisis”, with a reported 37% of petrol stations running out of fuel and forced to close forecourts to panicked customers. It is widely reported that the primary contributing factor is a shortage of HGV drivers.

However, the media announcement of a possible petrol shortage, and a (largely irresponsible) message urging people to ‘not panic buy’ was all that it took to make a tricky situation ten times worse. Disgruntled petrol station workers had the pleasure of serving panicked customers forming mile long queues, petrol tanks were filled to the brim and jerry cans sold out. The number of transactions at fuel stations increased by a whopping 50% and the average spend jumped 50% from £20 to £30. From this we can see not many lessons have been learned since the country was asked not to panic buy toilet roll in 2020…

The arguments surrounding the petrol situation are many and varied. Sceptics have suggested this was an orchestrated event to sell off surplus fuel supplies that would expire. This allegation holds no substance because oil refineries cut output last year, responding to demand dropping when prices rose. This ensured that refineries were not left sitting on a stockpile with a limited shelf life.

We get a better impression of the stocking situation from chart 1 showing fuel stock levels sitting at around pre pandemic average levels. Had panic buying not ensued, it is clear to see, even with average supplies, there was enough fuel in the system to meet normal demand.

Chart 1: Average stock at sampled UK petrol stations

Source: Department for Business, Energy and Industrial Strategy, September 2021

Broader Market Implications

As reports of a fuel shortage grew more forceful this rapidly developed into an inflation and growth narrative – a fuel crisis would stoke inflation and hinder economic growth. The pound sterling fell below $1.35 for the first time since December 2020, a loss of over 5% from its 2021 peak of $1.42. The negativity bias that infects the media also played out in the mind of one analyst. Currency strategist, Shreyas Gopal of Deutsche Bank said ‘even if individuals stop panic buying, the supply chain issues leave us with an increased risk of the country coming to a standstill’. He must have fell out of bed on the wrong side the day he made that comment. Generally, forecasters still expect sterling to strengthen over the next two years against the dollar.

Chart 2: GBP/USD Exchange Rate

Source: Bloomberg, September 2021

New Measures in Place

While some commentators’ debate whether the media provoked the panic buying we have no doubts that they did. Yes, the situation is one where there is a shortage of drivers to fulfil deliveries to meet spiking demand, but measures are being proposed, some creative, to attempt to get more truck drivers on UK roads.

  • Removed restrictions on towing large trailers/caravans for those who passed their driving test after 1997. Attempting to free up instructors and examiners to push through more new drivers.
  • Proposals to lift working visa restrictions on HGV drivers to encourage drivers from other countries to work here.
  • A plan to mobilise members of the army trained to drive HGVs to help fulfil deliveries.
  • Dominic Raab even proposed to train up convicted criminals on community service to drive goods vehicles to help fill the gap in this employment space.

Concluding Thoughts

It is easy to apportion blame to individuals panic buying when news of a potential shortage emerges. Unfortunately, the human mind operates with a ‘negativity bias’, which responds strongly to actual and perceived threats.

At this stage it is difficult to say whether there will be long term economic implications. We suspect solutions are there to be found. The government, also with some fingers pointed at them, have quickly proposed potential ways to ease pressures on the haulage industry.

Some are attributing the recent sterling weakness to investors airing caution around the UK’s recovery slowing and inflation building, citing bottlenecks and shortages as the main culprits. Forecasters are however viewing these as temporary issues which can be remedied, projecting sterling strength over the next 2 years.

Global Markets