Oil Prices Rise

Yes, today’s blog has it all: Oscars, Oil Prices, and environmental news. As the red carpet is put away for another year, the tinsel town must be quite pleased that it managed to navigate through the racial diversity row for now.  Chris Rock joked, “You realize if they nominated hosts, I wouldn’t even get this job! You’d all be watching Neil Patrick Harris right now.”

If race wasn’t the main topic last night, then the environment was. After five previous nominations, Leonardo DiCaprio finally won his Oscar for best actor in The Revenant.  As an environmental campaigner and fundraiser, DiCaprio used the opportunity of his acceptance speech to highlight to the world the importance of taking care of our planet. Somewhat predictably, his stance raised accusations of hypocrisy as he takes private jets, owns several homes, and has an enormous yacht.  I wonder if he has ever read George Orwell’s Animal Farm?

…and so to oil

Today has seen the continued lifting of oil prices – up 14% since the Russian, Saudi Arabia, Qatar, Venezuela freeze on production to January levels announced on February 16th.  US oil output dropped, as did the rig count – down to just 400 now, the lowest levels since 2009.  The world currently has a surplus of around 1.7m barrels a day on demand of 93m barrels – something the markets believe will soon be addressed.

We will see what happens next, but money managers are increasing their futures contracts, another clear sign that this upward trend of oil prices is, at least by some, expected to continue.

Natural Gas (NYMEX) started the day in the $1.69 d/th range this morning before lifting to $1.73 d/th within three hours of trade.  These numbers are quite incredible.  Just under a year ago, we had prices at $3 d/th – nearly double where we are today.  Believe it or not, these swings still cause companies massive headaches.  If you are buying $20m of natural gas (delivered) each year, you could have overpaid by $5m if you bought at the peak last year – or think of it another way, your competitors could have paid $5m less.

Think of the sales needed to generate $5m in profits – it makes your mind boggle.

Typically, organizations don’t like to budget for the next fiscal year until further into the current one. However, this reactive approach creates terrible price exposure for an organization and should be addressed.

Energy procurement decisions should be taken independently from the budget setting and be considered in a strategy that covers requirements for multiple years. Energy buyers should look further and further forward to see how they can control costs without breaching any of their accounting principles. Still, a fear of being left paying higher prices if markets fall prevents them from taking action.

Vervantis addresses this problem using a proprietary risk management solution that enables prices to be fixed and unfixed through your supplier agreement and checks your position daily to make sure your risk values are controlled. It doesn’t matter if you’re trying to manage oil prices, natural gas, or electricity costs – our solution will deliver clear guidance.

To learn more about our energy procurement or risk management strategies you can connect with us here or speak to one of our sourcing experts now: 1-888-988-5474