The skyrocketing price of oil is issue No. 1 these days for individual consumers or major corporations. Few predicted that the per-barrel price would rise to more than $140. Fewer still anticipated how quickly prices at the pump would climb in reaction. The only thing for sure is that the price of oil will continue to be unpredictable, presenting a major ongoing challenge to manufacturers.
The United States relies heavily on foreign oil imports. According to the Organization of Petroleum Exporting Countries (OPEC), there is enough supply to meet international demand. However, a recent short-term energy outlook issued by the U.S. Energy Information Administration cites concerns that global supply growth may not keep pace with demand growth in the near term. Although Saudi Arabia raised production in July, supply losses in Nigeria and heightened tensions between Iran and Israel raise new concerns about future supplies. Global supply uncertainties, combined with significant demand growth in China, the Middle East, and Latin America, are also expected to pressure oil markets, the report says.
This is a situation that is outside manufacturers' control and hitting many of them hard, especially the small and mid-sized enterprises that form the backbone of this country. Aside from the cost of electricity to keep production running, escalating oil and gas prices impact supply chain flow, which means companies have to store more inventory, buy raw material in bulk, and change transportation modes and schedules.
"The cash flow side of the business is greatly affected by the high cost of energy," says Richard Sade, vice president of S&S Hinge Co., a Bloomingdale, IL, maker of closures and hinges.