The increase in the price of crude oil and gas has resulted in a major shift in the global supply chain. It is not just the cost of fuel that is changing, but also the amount of energy that is required to transport goods. These changes have had a profound impact on companies around the world, especially those in the food industry. Fortunately, there are still a variety of cost-effective options for companies to use in order to keep their supply chains running smoothly.
Increase in crude oil prices
Crude oil prices affect the global supply chain in many ways. The most obvious effect is the increased volatility. This volatility will impact consumers and businesses. Other factors include production costs, transportation methods, and innovations in other industries.
An increase in the price of petroleum products will increase the cost of goods. In turn, this will affect the profit margins of companies that rely on them. There are several strategies that companies can use to mitigate this risk. These include developing more regional warehouses, changing the delivery method or lowering profit margins elsewhere in the supply chain.
A “real” oil price can be calculated by dividing the price of the commodity by the gross domestic product deflator. It can be a good indication of the oil industry’s relative strength.
However, the real value of the “oil” price is not the same as the real cost of producing the commodity. OPEC’s decision to cut production has also affected the market. Several non-OPEC producers have also seen an absolute decline in output in recent years.
Hurricane Ida
Hurricane Ida caused widespread damage in the US, but how does it affect the global supply chain? The storm affected various facilities, from refineries and grain elevators to chemical plants.
As the hurricane approaches the Gulf Coast, multiple ports are shutting down. This will impede container shipping and fuel delivery. It also could aggravate a supply shortfall in the United States.
Some major trading houses are assessing the extent of the damage to port terminals. The Port of New Orleans is an important link in the U.S.’s supply chain.
Agricultural storage facilities, gas terminals, and pipelines will also be impacted. Considering the amount of damage, the long-term impact will likely include higher labor costs and the reworking of the country’s supply-chain logistics.
Energy shippers are no strangers to unique challenges in handling sensitive materials. But after Hurricane Ida hit, most of the oil production in the Gulf of Mexico was offline. However, most production should be back by the end of the week.
Russia-Ukraine war
Russia’s invasion of Ukraine has disrupted the global supply chain. It is a major threat to the stability of energy markets and food supplies. The impacts of the conflict are still accumulating.
For one, the war has raised energy prices globally. Prices have increased more than 15% in the past week and are now trading above $110 per barrel.
The European Union announced its intention to cut Russian oil imports by two-thirds. This move has led to fears of energy shortages in the EU.
Similarly, gas output from five European countries has been halted. This has left Europe vulnerable to further disruptions. Amid these challenges, the IEA is monitoring the effects of the conflict on global energy markets.
Russia is the world’s largest producer of natural gas. However, it is still able to find markets for most of its output. Even as the conflict continues, the supply of gas is likely to be disrupted.
Cost-effective options for energy supply chains
Energy supply chains are complex and multi-disciplinary networks that meet the needs of society. They include infrastructure, labor, equipment, materials, and policies. These complex systems have a wide range of impacts on people and the environment.
As energy supply chains have evolved over the last few decades, they have also been subject to changes in technology, economics, and policy. Today, many countries are trying to transition away from fossil fuels. However, this can be a highly uncertain process. In order to make the transition, new technologies and innovative supply chains will need to be flexible and resilient.
Despite the challenges, the UK continues to make progress in decarbonizing its energy system. The country has committed to reducing its CO2 emissions by 80 per cent by 2050. At the same time, it has increased its commitment to net zero emissions by the end of the century. It has also incorporated the Bipartisan Infrastructure Law into its energy policy.
