Economics & Research Blog
Ready for $100 Oil?
Oil hit a supposed record today,
By Dr. Joe Webb
Published: October 15, 2007
Oil hit a supposed record today, $86. It was more, on an inflation-adjusted basis, in the past. But I've written about that before. What I'd like to focus on is planning.
Any good planning process should include contingencies such as a doubling of materials costs (and also a halving of them as well). These different scenarios allow organizations, large or small, to have a better understanding of the way their business works. This is one of the better uses of spreadsheets like Excel, of course.
You also have to remember that $100 oil is more psychological than anything from a market panic sense. It can create a situation where spending on anything among clients gets greater scrutiny, slows down their spending, and can slow down your expected sales rates.
It also means that electronic media may gain more favorability because of their costs or the perception that they are less expensive than hard copy approaches.
So anytime that you have a rise in the prices of the commodities and materials you use, think two or three steps down the chain of how it might affect your clients and their decisions.
Many print clients will get spooked about what higher prices may mean for the holiday shopping season. This is all the more reason to discuss with them the importance of promotional campaigns that will keep store traffic undeterred. Post card direct mail campaigns are very common now, but there is much more room for them to grow. Be proactive now and they are likely to be pleased that they ran that extra campaign for the holiday season, which is fast approaching.
These periods are also times where companies that have not kept up with new technologies with steady capital investment are penalized by having to maintain less productive approaches. A steady investment in a company's capital base pays off in times such as these from a competitive standpoint.
Watch for news stories in the next few days that the Fed may have to raise rates or cancel an easing because of the inflationary effects of higher oil prices. Don't get caught up in them. The Fed will do whatever it decides to do. Watch out for yourself and especially your client, helping them stay out of a pessimistic downdraft that might occur in the next few weeks.
As far as oil, the press rarely discusses how we are 40% more productive with energy use than the oil embargo years and almost never adjusts their view for inflation. So we're always setting records as far as they're concerned. With that in account, in round numbers, oil has to reach $150 a barrel and $6.00 a gallon of gas for it to be equivalent to the worst periods for energy prices in the 20th century.