A sigh of relief can be heard throughout the entire oil industry as the price of crude continues to climb. Since it crashed to below $50 a barrel at the beginning of 2015, the oil price has remained painfully low, so low in fact that it proved fatal to a number of oil & gas companies no longer able to survive on the diminished revenues.
As discussions on how the oil & gas sector could be back on the rise inevitably take place, it reminded me of being in school and learning of the economic impacts of rising oil prices, impacts beyond oil & gas executives finally being able to get a good night’s sleep!
The main negative impact of high oil prices, or at least that purported by basic economic theory, revolves around consumers being negatively impacted due to living standards being eroded by higher cost of goods, both directly through purchase of oil-related products but also indirectly from “cost-push inflation” given how much oil & gas is used to produce everyday goods.
A new factor to consider
But there could be another impact of higher oil prices that I wasn’t taught by my teacher at school. That impact may be that with a higher oil price many of the oil & gas companies may soon get comfortable again and become reliant on the margins attributed to higher output prices rather than leaner operational costs. The low oil price helped bring some momentum to a much-needed agenda to cut costs in order to survive the slump. Despite this momentum, some cost minimisation efforts still never left the boardroom, and the chances of it ever doing so would be lowered if these companies no longer feel the urgency to cut costs.
An imperfect past presents an opportunity to set a better example
The past has shown that oil & gas companies are willing to commit to lowering costs during times of low oil prices, but once the price picked up, they switched their focus to ensuring that as much oil was being produced at the price per barrel. One can only hope that the pain felt by the recently depressed price is substantial enough such that the same mistake won’t be made again and that the willingness of oil & gas companies to adopt innovative new ways to minimise costs won’t be short-lived.
Despite what’s happened in the past, we are increasingly seeing first hand examples of oil and gas companies starting to become more open to adopting new innovative ways to digitalise and modernise their procurement processes, albeit at a slower rate than almost all other industries. A Redburn report stated 10% of employees at oil & gas majors are currently working in procurement, this dis proportionately large percentage has meant that methods to streamline procurement have been high on the agenda for many companies we speak to.
DeepStream’s online platform provides Buyers and Suppliers ample opportunities to broaden the parties they interact with, which we believe will make it easy for them to lower their procurement costs, streamline their tendering process and gain new business opportunities. For Buyers, they can engage with new suppliers, which often results in them finding cheaper and more efficient suppliers. On the other side, through our open marketplace, suppliers gain exposure to buyers that they haven’t worked with before, thereby providing them with an abundance of new opportunities for future business. Therefore, whether the oil price is high or low, DeepStream provides benefits to those in the oil & gas industry and it is imperative to their future survival that oil & gas firms remain interested in innovative ideas.