| The Forecast Is Not Good
Don’t look for the price of gas to drop any time soon. And by time, we’re talking years. In fact, look for it to rise. On top of already stratospheric prices, the recent earthquakes in China did so much damage to its infrastructure that China’s demand for oil will continue to increase for years to come. Add additional catastrophic events such as hurricanes, earthquakes, refinery fires, etc. into the equation and you can also expect to see tremendous spikes in fuel prices in a single day for years to come.
The Non-Driving Forces
There’s been a lot of talk about increased fuel consumption in Japan, North America and Europe, oil speculators, and windfall profits causing price inflation, but if you think that’s driving it, you’re misinformed. Consumption in Japan, North America and Europe has been falling for years. Oil speculation (while an acknowledged problem) only accounts for about 20% of the increase. Windfall profits are simply a political gimmick in an election year. Oil company margins are remaining about the same as previous years. In fact, they’re contributing a lot of additional tax dollars to the U.S. Treasury.
More onshore and offshore drilling in the U.S. will help alleviate the problem, but that’s years away. Also with refineries operating at near capacity, additional refineries would have to be built. The decline of the dollar, while not helping, is not the root cause of the rise because if the dollar did not plummet, prices would still be about 5 times more than 2002 levels.
The Root Cause(s)
The root cause is a combination of factors that have become (and will remain for the foreseeable future) the perfect storm. And like the perfect storm there’s no way to get rid of it until it blows out to sea.
Oil producing countries claim they have not cut their oil production and that’s true. But what you’re not being told is those country’s domestic demands for oil have increased, so less oil is being exported. According to the U.S. Department of Energy, petroleum exports by the world's top 15 oil exporters fell 2.5 per cent in 2007. That trend appears to be carrying over into the present year. On top of that, many of the petroleum producers highly subsidize oil to their domestic consumers, further contributing to the problem. As of April 1, 2008 you’d pay $.12 per gallon in Venezuela, $.40 in Iran, $.45 in Saudi Arabia and $.90 in Kuwait while many countries in Europe are over US$8.00. Eritrea topped the list at $9.58 per gallon.
Brazil , Russia, India and China also have economies that are growing rapidly and consuming increasing amounts of oil. China likewise subsidizes some domestic oil prices adding fuel to the fire (no pun intended). The increasing demand for oil in these countries is far outstripping the continued decreased consumption in North America, Japan and Europe.
And that’s the bottom line. Market forces. Demand outstripping supply. Whatever you want to call it, be prepared to continue paying through the nose.
Protect Your Wallet
The price of fuel is going to continue to increase and there’s nothing you can do to affect it directly. Hybrid vehicles have too long a pay-off period. You’re turning off every light in your building at night and probably in neighboring buildings also. If you can think of it, you’ve probably done it. You’ve looked at lowering costs in every imaginable area, but your back remains against the wall.
It’s time to stop reacting and be proactive. You have to lower real costs to compensate for rising fuel prices. And we’re not talking light bulbs or hybrids. That will be the topic of our next issue of Logistic Trends. If you’d like some insight before then, send us an email at info@xpship.com.
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