Volatile Times Call for Extra Measures to Mitigate Risk and Optimize Costs
Right now, everyone is focused on volatile crude oil prices, and understandably so. An abundance of supply is placing downward pressure on prices, and supply growth outside of OPEC nations is growing at lightning speed.
With 2019 capital budgets built around $40/bbl oil due to price dips at the end of 2018, market participants are keeping a watchful eye on global prices. And they’re obviously hoping to see that price spike back to $60-$70/bbl so they can continue business as usual, as well as have extra revenue to put toward growth initiatives. Which, based on recent prices hovering just above $50/bbl, is a high probability. However, we’re not there just yet.
“With oil prices currently trading below $60 per barrel, there continues to be some uncertainty on 2019 E&P spending, particularly offshore,” TGS Chief Executive Officer Kristian Johansen said.
When commodities markets experience extreme volatility and uncertainty, businesses typically tighten the reins on spending by reducing headcount, selling assets, and putting projects on hold. However, this isn’t the market’s first rodeo when it comes to periods of extreme volatility, and the last decade has created a much leaner breed of competitor.
There will be two camps of market participants who emerge from the current industry cycle – those who curtail their innovation and shrink their businesses in lock step with the price of oil, and those who take advantage of the opportunity to trim the fat, beef up their technology, and position themselves for aggressive growth when the cycle ultimately breaks. In order to ensure a position in the latter group, market participants must have the ability to know where risk is, identify where they are gaining revenue, and find where they are losing revenue.
The Biggest Budget Cut Mistake When Extreme Volatility Strikes
The last thing any market participant wants is to be caught unprepared for what lies ahead. And the reality is, that trap can be so easy to fall into if a business is not making proactive investments in its portfolio management processes.
Yet, when extreme volatility hits, new technology purchases and implementations tend to be the first to take a back seat when budget cuts are made. Which is one of the biggest mistakes a company can make. In fact, a 2016 survey found that U.S. businesses alone lose up to $1.8 billion each year in wasted productivity due to obsolete technology.
Invest in Dissecting the Data
Leading organizations know that in a rapidly changing and risky market, the ability to harness the increasing volume, velocity, veracity, and variability of data sources through advanced analytics is imperative to survival.
From managing risk and full decision support to determining dispatch or the use of an asset for planned outages – businesses often struggle to optimize their portfolio of assets for maximum profitability. The key to understanding and quantifying complex optionality within each asset and trading around the asset is advanced analytics. Allegro’s Asset Optimization product suite, powered by FEA advanced analytics, can help you harness massive amounts of data with real options – based decision support, optimization, and valuation tools. Our Asset Optimization solutions empower organizations to handle complex optionality, manage risk, and mitigate stochastic events with ease – all while maximizing the asset value output for any commodity.
Prepare for the Unknown with Enterprise CTRM Technology, Powered by Advanced Analytics
Do you have the speed and agility to get your product to market efficiently? Are you able to take a macro view of your transport options and create margin? Where can you tighten your timelines, improve operation efficiency, and reduce risk exposure while expanding the upside?
Now is the time to inspect and assess your technology assets, prepare for increased volume and business complexity, and sunset your old way of doing things.
While the state of the market is unstable, now is the time to invest in enterprise commodity trading and risk management (also known as CTRM or ETRM) software and advanced analytics. With this flexible and comprehensive software suite, you can:
- Manage your entire portfolio in real-time and in one place
- Identify where you are profitable
- Optimize your assets
- Limit risk exposure
- Streamline operations
If you lay the right foundation now, you will be ready to run full speed ahead once the market settles. Contact us today to learn more about how Allegro’s advanced CTRM and analytics solutions can help you navigate market volatility and gain a competitive advantage.