With gas prices plummeting recently to just under $4 per gallon, and forecasts of oil price drops to as low as the once historic $100 per barrel, it would be human nature to breathe a sigh of relief. It’s not unthinkable, in light of the effects of 07-08’s market “correction”, to accept the “new normal” of petroleum pricing and establish a “storm has passed” mentality. It’s a fact of necessity that most consumers, especially those at the pump stand, will do just that. After all, if $4 gas is terrible, the $3.25 we saw as an abomination just a year ago seems not so bad. But if we’ve learned anything, and that’s open for discussion, from the recent effects of petro-economics on our wallets, it’s that the market for oil and its many uses is painfully dynamic.

Yet the automotive gasoline buyer feels the sting of petro-economics in a concentrated, short burst. Each trip to the pump stings a bit. The monthly budget, for those of us who have one, takes a more appreciable hit. But these economics pale in comparison to the brute force effects of petroleum prices on manufactured goods such as plastics and rubber, freight costs for overland/overseas shipments, and petroleum and natural gas based chemicals. The basic truth is though; that the head of a family is not being held accountable to stakeholders and shareholders like a CEO is held accountable. At least for the meantime anyway, 8 year old Jenny won’t be calling Dad in to give him a golden parachute because the Q1 and Q2 2008 dividends have been well below “the Street’s” projections. For those of us who place the orders for goods and services whose prices have spiraled in the last year, however, that CEO level accountability rolls swiftly downhill.

So while there appears to be a break in the madness, or at least a respite, now is not the time to be catching one’s breath. The dangers of merely riding the petroleum wave are evident in this most recent crunch, the last crunch and the crunch before that one. Each market movement does create a “new normal”. That new normal creates either the harsh reality of passing on the sting of higher costs, or the opportunity to use tools and metrics to one’s competitive advantage. The willingness to embrace the opportunist mindset is the linchpin in turning the punishing effects of market movements into competitive advantage. After all, it’s unlikely that any competitor has found a method whereby they can avoid the effects petro-economics. Thus, those who can pare out the greatest percentage of those painful changes are likely to be the benefactors.

It’s difficult to imagine a commodity that has a deeper, more widespread effect than petroleum. Because it affects the supply chain as far upstream as the production of raw materials and as far downstream as the packaging and distribution of finished goods, it’s a challenge to imagine any business that has not or will not be affected by market movements. That’s why market dynamics present and opportunity, writ large, for almost every company to affect its bottom line by managing the effects of petro-economics now.
For next time, we will delve into the who, what, when, where, why and how of petro-economics and how the forward thinking procurement team can better identify, isolate and manage these effects to your company’s advantage. Whether petroleum affects your bottom line at the foot of the river or at the mouth of the delta, it’s sure to be beneficial.

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