L-K Log: June 2018
Oil Price Volatility: Driving Force Behind Flexible and Responsive Companies
by L-K Industries
It’s officially summer, and predictably, as the temps rise Americans tend to notice that so do prices at the pumps. They’re accustomed to digging deeper into their pockets as they flock to beaches, mountains, and other tourist destinations during the heavy driving summer season. But since the deep downturn of oil prices in late 2014, slightly steeper summer prices have still yielded savings for consumers.
That may be about to change. And – more importantly – it’s actually good news for some Americans, particularly for those who work in the petroleum industry.
Before the price collapse, oil traded for $90 to $100 a barrel; by early 2016, it had dropped to below $30, rallying to about $50 by the end of the same year. Lower prices have been the norm since then, and L-K responded to new market conditions by strengthening ties with customers, expanding product offerings, and putting time and energy into R&D. Customer Education and Orientation programs, the acquisition of Miller-Weber and the opening of the accredited ISO/IEC 17025 laboratory, and new products like the Benchmark Platinum and the SMART Transport I are in some ways a result of the oil market downturn.
But, as many have predicted and history has revealed, the industry fluctuates like a pendulum – bust becomes boom. Or at least a recovery. According to Markets Insider, the WTI (West Texas Intermediate) is “the reference oil traded most frequently and of major significance for the USA.”
Last week on Friday, June 22nd, WTI Crude closed at 68.58 (+4.64) and Brent Crude, the primary international benchmark, closed at 75.32 (+3.46). Though it’s far from $100 a barrel, price per gallon for regular octane gas in many parts of the country has crept up over $3.
So why is paying more money to fill the tanks good news? Arguably, as the price of oil goes, so too does the U.S. economy; oil is probably the most important value on the international commodity markets. According to Energy & Environment, its rise in price means more business and income for states that produce oil as well as local companies that service the industry, like housing and trucking businesses. A rise in price equals greater incentives for increased oil field activity. The rise may even spell a benefit for the environment, since higher prices encourage consumers to buy smaller vehicles and limit driving (Energy & Environment).
Overall, increasing oil prices make for a stronger U.S. economy and allow businesses like L-K to put into practice what they’ve worked on during “bust” years. Cyclical price fluctuations have their place in a market economy, and perhaps should be embraced. And that’s good news, given that The New York Times on Friday reported officials from OPEC (Organization of the Petroleum Exporting Countries) have agreed to increase oil production– a move which could stifle rising prices.
The lesson? Companies need to adjust to feast and famine, boom and bust by meeting client needs, improving product offerings, and surpassing industry standards. If oil price volatility is the new norm, companies who intend to survive must be flexible and responsive to changing economic conditions.