Economics, loopholes, opportunities and uncertainty
Fuel Oil News has provided a lot of coverage on the Enron loophole over at least the past year. When you look at the price of crude and refined product and follow some general parameters for what supply and demand should generate it becomes obvious that something is artificially adding to that price. The primary culprit being singled out today is the role speculation plays in the process with some of the markets that have less transparency.
However, as with any issue there are countering opinions and we run one of those in this issue from Mike Corley, the founder and principal of EnRisk Partners, LLC. He doesn’t necessarily deny that speculation is having an impact, but he does provide some perspective over what the short-term and long-term impact might actually be relative to other factors. Basically, don’t expect too much if you actually get the loophole closed.
While on the subject of fuel prices, and the ability of customers to pay them, the question of the day is ‘are we in a recession or not?’ A month ago, the doom and gloom was being trumpeted by every media outlet in the country and overseas. And while there are no doubt some negative short-term indicators, and some likely very serious long-term structural issues with our economy that need to be addressed, some of this recession talk might have been a bit premature. Or, perhaps not. It’s really hard to get a perspective when the experts ‘ a range of national and international economists ‘ can’t seem to fully agree on what’s happening today and what’s going to be happening in the near future.
As industries go, home heating oil distributors have a more recession resistant business model then many industries or commercial sectors given the fundamental human need for heat and some degree of inelasticity with demand. That doesn’t mean a homeowner will not decide to put off a heating system upgrade, or turn the thermostat down to save some money or, with the sub-prime mess, have to give up his or her home. Or that the downturn in the housing market will impact new construction installations. But, life will be better compared to those serving customers in less fundamental areas.
And, in any recession there will be opportunities as well particularly with the current prices on petroleum products. If a customer can afford to make an equipment upgrade for efficiency purposes that customer can calculate out a solid return on investment. Of course, should a recession hit and ripple throughout the world conventional wisdom would say that demand will take a hit and the price of crude oil and refined products should drop. In a world where conventional wisdom hasn’t been all that conventional lately, only the reality on the street each day will tell the tale.
If the above sounds somewhat wishy-washy, then I have to plead guilty as charged. The economy really has changed dramatically in the last decade or so and you almost have to see what the reality is when you wake up in the morning to understand what impact any major shift might have on day-to-day business operations and the operating environment. For those marketers and distributors that have done all the right things in getting their business to be efficient and building their brand reputation among their customers, an economic downturn will be a manageable delay while waiting for better times to arrive. For those that have not already fine-tuned their operations there is likely no better motivation to start paying some serious attention to that process today.