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Oil Price Watch

From October 2007 to September 2008 I wrote 5 columns which dealt with oil prices and their effect on transport cost and supply chains. In October 2007 crude oil breached $90 per barrel. Subsequently crude oil breached $100, then $130, eventually reaching a peak above $135 near mid-2008.

At one point I recalled the oil products rationing that was instituted in the Philippines in 1973. Few people will remember or know about this.

The recent two successive price increases of oil products started a rumor of oil products rationing. One question being asked is – will rationing take place? The rumor was sparked by a remark from a Dept. of Energy official.

Let us recall what happened nearly four years ago in 2008. After reaching its peak near mid-2008, oil prices started to come down. Andrew Freris, Chief Economist of BNP, Asia-Pacific, bravely predicted that oil prices would come down, to $95 by-2009. Mr. Freris was absolutely right.

Will there be rationing of oil products?

Prior to 1973, there was no OPEC controlling global oil. The main source of oil was the Texas oilfields. In 1973 the Texas oilfields had peaked in production. New sources of oil had been discovered, a lot in the Middle East, and the OPEC cartel had been formed.

The conditions obtaining now are very different from 1973. The threats to global oil supply come from the possible eruption of war between Iran and the EU-US bloc, and internal conflicts in some oil-producing countries. Iran supplies some 20% of world oil supply. The threat is blockage of the Strait of Hormuz. Saudi Arabia remains the #1 supplier of oil.

From where we sit, rationing is a long way away. In a radio/TV interview, the DOE secretary allayed fears of rationing.

Still, with oil prices rising, questions remain,

• How high will they go?
• What will be the effects locally?
• What will be the effects globally?

Fortunately, we have been there before and can provide educated answers.

On the first question, it is difficult to answer, but the key will be the Iran conflict. Thus we need to be updated all the time on this matter.

On the second question, the most obvious effect will be increases in transport cost, shipping and trucking. SC practitioners would be well advised to start examining and re-thinking their supply chains, such as location of DCs, transport modes, transport options, etc.

Globally companies will redesign their supply chains. Some US companies have already done this in the last five years. For example, some have shifted from distant low-cost manufacturers (China, India) as suppliers, to nearer suppliers (Mexico, US). Perhaps some Philippine manufacturers have lost out.

SCMAP Planning

Under the leadership of new President Ike Castillo, SCMAP’s new board will hold its planning session for 2012 this weekend, Jan. 20-21. The entire lineup of committees is almost finalized.

Address inquiries and comments to Ed Sanchez at tel. 671-8670, fax 671-4793, cell 0918-914-1689, or email scmap.org@gmail.com. Those interested in SCMAP training and other activities are requested to send their e-mail addresses.

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