Business leaders around the world are fully aware of the precipitous drop in energy prices. Oil prices are reported to be at 5 year lows, with the absolute price per barrel cut roughly in half in 2014. This weekend in Chicago, there was a specific gas station, to which I am fortunate to live near, selling unleaded gas at $1.99 per gallon. There were 10-20 cars waiting in 15 degree weather for gas. Last but certainly not least, liquefied natural gas is under 3 dollars per BTU, which will have significant impact in the U.S. north as the cost to heat homes and business will be less, among other things.
These are by no means insignificant prices. Neither is the rate of change. Indeed, governments and their financial ministries around the world spent much of the end of 2014 reworking budgets as the prices of oil went from 100 to 90 to 80 to 70 to 60.
This led me to thinking about our customers.
- How does the volatility in energy prices affect your business?
- Are the impacts direct or indirect? Both?
- How quickly can your budgets and forecasts adjust for this significant amount of volatility in such a short period of time?
In reality, the effect of lower energy prices will be felt in many places in a company’s P&L report.
- Will your customers have more or less purchasing power as a result of this change in energy prices?
- Will your distribution costs go down?
- How does the effect of $80 per barrel oil compare to $60?
- What are the ultimate effects of this on profitability?
- Can you re-price your service or product based on lower energy prices? (for example, Airlines and other transportation companies)
If your business creates its budgets with spreadsheets and other manual processes, the creation and updating of these budgets is inordinately slow. If you are looking to implement solutions which make recalculating budgets and creating versions of budgets easier, please reach out to us.