Oil price volatility significantly impacts the logistics market. It not only affects the operation costs of the businesses but also hampers the firms’ abilities to make long and short-term decisions.
2022 started with unforeseen developments which followed a year of recovery from the Covid-19 pandemic. The year started with the Russia-Ukraine conflict which sky-rocketed crude oil prices throughout the year due to restricted supply. In addition, there were various severe economic disruptions- a looming economy and decade-high inflation in a lot of countries, which undoubtedly heightened oil prices.
The Organisation of Petroleum Exporting Countries (OPEC) basket price had extreme fluctuations ever since the pandemic hit. The price reached an all-time high of $125.03 per barrel in March 2022. This is because of the sanctions imposed by a lot of countries in Russia which tightened the oil supply. However, due to the increase in the supply from OPEC in July 2022 by 648,000 barrels a day and the decrease in demand due to the trough in the economy, we witnessed a drop in prices from July onwards.
In January 2023, the average price of the OPEC basket for this month is $80.63 per barrel while the price was $79.72 per barrel in December 2022. Over the last twelve months, the price has fallen by 5.59%.
So, what do these fluctuations mean for us? It is no secret that the logistics industry is tightly tied to the global oil markets. Due to such intense swings in the oil market, companies are trying to adopt new strategies to reduce the outward domino effect- if the oil prices rise, the operating costs increase and are therefore passed on to the consumers. With the increase in cost, companies tend to keep more inventories in hand to minimize the transportation required. Smaller shipments might be avoided as it is less cost-effective. The drop in crude oil prices witnessed in the last couple of months is a good sign as it is regulating towards precedented levels however, the logistics industry needs to adapt to such fluctuations in prices to ensure continued profits and avoid any potential setbacks.