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The latest supply chain risk story hitting the news this week is … pirates. Yes, pirates. With 8 pirate attacks on oil tankers off the coast of Somalia in the last 10 days, the total number of attacks this year is up 75%.
The story has all the ingredients necessary for a hyped up post-US-election week long press obsession. Physical danger and an added bonus, potential economic impacts if the piracy actually drives up oil prices, as some media outlets have already alleged. The fear(mongering) is that this danger will force tankers to take longer routes, which means delays and increased fuel costs that may be passed on to consumers.
While the piracy threat is increasingly evident and real, it certainly hasn’t impacted the price of oil yet, and I don’t think it will in the grand scheme of things. Right now, the current global crisis and demand slowdown resoundingly trump pirates when it comes to oil prices. Even if costs do indeed increase (to beef up security, etc.), this doesn’t translate directly to higher prices. After all, costs were not what caused oil prices to skyrocket earlier this year - it was the fear that we would not have enough oil supply in a few years.
If demand were still sky-high, oil prices would have already spiked in response to these events. But as we all know, demand has continued to plummet in recent weeks, and supply risk price premiums have eroded accordingly. I don’t see how a rogue band of ruthless extortionists can single-handedly reverse this trend on a global scale.
Bob Zieger is a Category Manager for Plastics and Raw Materials in Ariba’s Global Sourcing Organization. Bob holds a MBA from Katz Graduate School of Business at the University of Pittsburgh and spent 11 years in the plastics industry in engineering and sourcing roles. He is also a Certified Purchasing Manager (C.P.M.) as recognized by the Institute for Supply Management.
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4 responses so far ↓
1 Supply Insider // Nov 21, 2008 at 7:16 pm
Conspiracy theorists might question whether these pirates are backed by OPEC that wants to take some capacity off the market.
…and cynics would say, wait a few days and the value of that tanker will decrease so much that the pirates will need to lower their ransom.
2 Supply Excellence — Oil Price Fundamentals: Don’t believe the hype // Jan 13, 2009 at 2:00 am
[...] is just like other commodities in that pricing is governed by supply and demand. While contango, Somali pirates, and accounting tricks can be a source of market volatility, these games don’t have a long [...]
3 Transcripts : Oil Price Fundamentals: Ignore the Hype // Jan 14, 2009 at 10:45 am
[...] is just like other commodities in that pricing is governed by supply and demand. While contango, Somali pirates, and accounting tricks can be a source of market volatility, these games don’t have a long [...]
4 Energy Tough Love Blog » Oil Speculators At It Again - This time instead of fooling with contracts they are actually fooling with the tankers themselves. // Jan 14, 2009 at 1:41 pm
[...] is just like other commodities in that pricing is governed by supply and demand. While contango, Somali pirates, and accounting tricks can be a source of market volatility, these games don’t have a long term [...]
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