Energy Management Institute Advises Companies to Develop an Energy Risk Management Program Now to Ensure Extraordinary Cost Savings.
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NEW YORK, NY (January 9, 2015): Energy Management Institute (EMI.org) is advising its clients to prepare now in order to take advantage of a quick turnaround in gasoline and diesel prices once crude bottoms out. Since 2004, each time the crude market reaches its low point the diesel market rebounds and recovers 80% of its lost value in just over 4 months. This fact holds true for gasoline and jet fuel prices as well. Once the market turns, unprepared companies have little time to develop a strategy to lock into lower prices.
“Time and again we see companies fail to prepare to take advantage of extraordinary cost savings,” said J. Scott Susich Senior Partner at EMI. He went on to say, “Companies become fixated on trying to time the market and catch the bottom only to see their opportunity squandered away.”
EMI’s advice is based on recently completed analysis of ten years of energy prices focused primarily on crude and its relationship to diesel. Since 2004 the market has experienced seven rapid declines in crude price of 20% or more. In six out of seven of those declines the market recovered at least 80% of its value. The one exception being the meteoric drop in energy prices associated with the global financial crisis of late 2008. Currently the market is on the downside leg of the eighth such drop this decade. The analysis showed that once a bottom is reached the market turns upward and recovers very quickly. The six decline and recovery periods are highlighted below:
When we examine the effect on retail diesel prices during these periods, we see a high degree of correlation and the same rapid recovery of 80% of the lost value. The table below details these movements:
“Locking in to low prices requires the development of an energy risk management program with buy-in from the very top of the organization. Getting the proper authorizations can be a months-long process for many companies emphasizing the need to begin before the bottom of the market is reached,” said Susich.
Many companies waiver from implementing such a plan believing the world is in for a long period of low energy prices.“We absolutely believe current low prices will not be the norm and oil prices will recover to higher levels as geopolitical risk is not going away. Lower oil prices will ultimately result in an increase in demand and, frankly, we do not think many of the OPEC countries will be able to sustain lower prices for an extended period of time before eventually going back to their historical policy of defending prices by cutting production.”
New York-based EMI (www.emi.org) provides specialized education, data services, and advisory services to major oil companies, utilities, Fortune 500 end-users and top transportation fleets throughout the world. As a division of Advanced Energy Commerce, Inc., EMI provides critical business information services and thought leadership in the energy segments of Oil, Gas, Alternative Fuel, and Electric Power.
EMI provides a tremendous amount of expertise in developing, implementing, and executing risk management programs. EMI helps businesses, both large and small, successfully manage their exposure to price risk in the face of never-ending market volatility. For more information on EMI’s Advisory Services, visit www.emi.org.