What's the real impact of low oil prices?

Admit it.  Last time you went to the gas station and filled up the car you were pretty happy.  Maybe you even gave your friend riding shotgun a little high five? Of course you did!

We are currently enjoying the lowest gas prices since 2009, with trends pointing toward an average price of gas for the US below $2/gallon. That long drive to visit the family is looking more affordable every day. Pretty cool, right?

Unfortunately, all those smiles at the pump have other folks crying in their beer.

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Many of the businesses I talk to have been supporting the fracking effort that has helped drive the price of gas down. It’s been a serious growth market for industrial suppliers over the last few years, and many jumped on board, letting industry penetration in other areas atrophy.But the success from this effort is coming at a cost. Unfortunately, due to our success domestically, OPEC responded by flooding the market with supply, purposely driving prices lower.

This glut of supply means that large business like Haliburton, Schlumberger, and Baker Hughes have no choice but to send out the notices that suppliers dread:

“Due to the decline in the price of oil we are requesting a 25% decrease in your contracted pricing.” 

“Ouch” doesn’t begin to describe it. The majority of folks I’ve spoken with say they will be turning down these requests for reduced rates. Please understand the intestinal fortitude this takes.  Most of these suppliers have worked for years to develop relationships with these large companies. Now they must risk those prized relationships because they simply can’t operate at the requested reduced rate.

The reality of the situation, though, is that they will eventually need to find ways to work at those levels if prices don’t rebound. That usually means cuts to the business and staff and effects on the home life of many hard working people.

The good news, however, is that businesses can position themselves to weather this storm. Those that have maintained a diverse portfolio of industries which use their products or services will feel the pinch, but will happily avoid true catastrophe.

Let this situation serve as your wakeup call. Review your current revenue that’s at risk in each industry. What would happen if a severe downturn hit your largest segment? How would you handle it? 

If you aren’t feeling confident in your answers, it’s time to recommit yourself to diversifying your business relationships — talk to one of our experts today to put your business on the path to success.

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