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TABLE U STERLING AREA OIL DOLLAR BALANCE OF PAYMENTS 662
Dollar Expenditure-
(a) Imports of oil by United States companies (b) Purchases of oil by British companies (c) Costs of production and expansion-
(i) Royalty and tax payments
•
(ii) Other operating and local expenditure (iii) Purchases of dollar equipment (including those for which United States companies provide dollars) ...
...
...
(d) Tanker hire and freight on United States companies
c.i.f. imports
Dollar Receipts—
...
$ million 1949-50
1953
342
387
56
16
137
117
ነ
149
157
153
117
72
100
909
894
8
(a) Sales of oil
225
370
(b) From dollar loan raised by Shell Caribbean Petroleum
Company ...
68
:
(c) Net miscellaneous items (including United States companies' provision of dollars in respect of projects in United Kingdom and joint ventures
36
24
329
394
Net dollar deficit
-580
-500
191
10. In return for this dollar deficit the Sterling Area receives oil to the value of $1,072 million in 1949-50 and $1,262 million in 1953. Moreover the United Kingdom balance of payments should receive net (i.e., after deducting local expenditure) in sterling from the rest of the Sterling Area or in currency other than dollars $458 million in 1949–50 and $665 million in 1953 as the net receipts from oil.
11. Calculations made a year ago put the Sterling Area dollar deficit on a comparable basis at $621 million in 1949 and $359 million in 1953, whilst the United Kingdom was expected to receive $806 million from the rest of the Ster- ling Area and from non-dollar countries in 1949 and $1,044 million in 1953. The reasons underlying the changed outlook are analysed in detail in Appendix III but the main reason is the reduced value of oil sales. This is due to a com- paratively small reduction in estimated volume of sales but primarily to the fall in oil prices. Since last summer the average price of petroleum products has fallen by 30 per cent., whilst the price of Middle East and Venezuelan crudes has fallen by 15-25 per cent. according to specification.
12. On the other hand the local costs of production are increasing. In Venezuela this is offset by an expected reduction in taxation as gross profits fall away from the high level of the immediate postwar years: but, as regards Persia allowance has had to be made for an increased rate of royalty owing to the present negotiations.
13. Nevertheless, the above figures may show a bias to pessimism. The Venezuelan oil interests are at present preparing a joint approach to the Venezuelan Government with a view to securing a revision of the royalty terms and they are not unhopeful of results since the Venezuelan Government is known to be concerned about the possibility of increasing competition from Middle East oil.
14. As regards future movements of oil prices a general reduction is to the disadvantage of the overall balance of payments, since we sell much more oil than we buy. As far as dollars are concerned, there would be, at the moment, some advantage from a fall in oil prices, since the value of dollar imports of oil exceeds the value of sales for dollars by a margin (in terms of value) that is, however, expected to be insignificant in 1953. A general rise would, obviously, have the opposite effect. In fact, however, oil prices do not necessarily rise and fall as a whole. During the last year the relative movement in prices has been particularly damaging. Motor spirit prices have fallen by 10 per cent. only, while fuel oil prices have fallen by over 50 per cent. As we are net buyers of motor spiritpfor dollars fand net sellers of fuel oil, this has sepiously affected our dollar position. For example, if motor spirit prices were to fall by 10 per cent.