A December Financial Times article that reported oil price volatility in 2012 could swing between $50 and $150 a barrel might prove quite prescient. The story, “Fat-tail fears catch oil traders between $50 and $150 bets,” noted that investors are concerned about events that could cause large swings in oil prices.
On the one hand, eurozone debt issues could drive oil prices much lower, but on the other hand, a crisis with Iran (or elsewhere in the Middle East) could send prices much higher. In the last few days, we’ve seen the saber-rattling between Iran and the US send Brent crude rising by more than $4 in a day to $111.
At the risk of stating the obvious, the commodity volatility trend of recent years will continue in 2012. Rapid and large price swings are not going away – if anything, volatility is getting more extreme. How commodity volatility is managed will be an incredibly important factor in determining company profitability moving forward.
The key phrase for organizations doing business in these volatile markets is “risk management.” With the proper processes and systems in place, risk can be turned to competitive advantage.
Here’s to a profitable 2012 for all!