Pour oil on it

Published: Jan 15 , 2015
Author: Alan Smith

There is one group for whom cheaper oil is bad news — oil producers, who've been having an amazing run between a combination of higher prices and surging production. For the rest of us it may be pretty good news.

For the negotiator there is certainly the potential of a discussion dependent on the relationship between the price of oil and that of your end products, and how you approach it will depend on which side of the fence you sit.

Oil keeps getting cheaper, with a barrel costing about $30 less than it did three months ago. This is big news for the major oil producing countries, obviously, but it also has important — and dramatically positive — implications for the short-term economic outlook. That's obvious if you're a heavy driver looking for some relief at the pump, but in truth the positive consequences are broad and widespread.

Oil plays a major part in the production and logistics for many organizations, and is a major cost component.

There is a lot of talk in the media about rockets and feathers. When prices go up they tend to rocket, but when they come down they tend to float slowly like a feather.

In many cases if fuel or any other raw material acts as a major influence on the price of products this will have been built into the deal by virtue of a mechanism to tag the price to the cost of fluctuations in said materials. Or it could be that rather like the futures market, the risk of taking a particular price now stays at one of the party's door. 

Figuring out how your organization deals with these changes in the market, many of which cannot be predicted or even foreseen, requires a strategic look at how we negotiate. What we do here and now with these suppliers or buyers may impact not only on how our business runs today but also into many years into the future.

The only thing we all know for certain is that change is around the corner. How we deal with that change is the bread and butter of the negotiation process.

Alan Smith

photo credit: haymarketrebel via photopin cc


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