Each day we hear new stories about how the record price of crude oil is affecting the overall economy, individual companies, and consumers. The sad truth of the matter is, the effect of high oil prices is just beginning. I truly believe we are just at the tip of the iceberg, especially when it comes to the pressure on individual companies that are especially reliant on oil. Sure we have heard some stories about some smaller companies having to shut their doors because of oil prices, but nothing too huge has shut its doors of yet. That could very well change in the coming months as the true extent of the pain becomes more clear. 
Gasoline price have now crested $4.00 a gallon on the national average and transportation companies are feeling the pain more than ever. United Parcel Services (NYSE:UPS) and FedEx Corporation (NYSE:FDX) are feeling the pain in the package delivery area already and have had to lower earnings estimates. These companies are taking unprecedented steps to keep costs as low as possible and they are still falling short. The poster group for pain from crude oil prices though is the airliners. AMR Corporation (NYSE:AMR) and Delta Air Lines (NYSE:DAL) have been two that have seen the biggest hits from jet fuel prices thus far, but all the others are feeling significant pain too.
The fact of the matter is, there is only so much companies can do to cut costs. Once the cost cutting ideas have been exhausted to a large degree, a company is left with little choices if it still cannot earn any money. Employees lose jobs left and right, and companies see their bottom line fall even deeper into the red.
There is obviously no idea what oil prices will do in the future, which is precisely why companies have come to grips with the fact that they need to adapt and assume prices will stay high. Those who believe this is simply a bubble and we will never see these prices again won't get far at all.
The bottom line is that high oil prices have been in the news and the effects of them have been talked about quite a bit, but I'm here to tell you that this is just the beginning.
Great post. Oil prices are affecting every part of the consumer-based industry. It's expensive to fill up your gas tank, it's expensive to cook now even with natural gas prices (economics 101), all your foods and vegetables cost more, Macy's doesn't offer free shipping on anything, and the contractor you hired to do your home repair charges you a fuel surcharge. Brace yourselves, keep plenty of money in liquid assets or investments.
Posted by: investmentplayground | June 11, 2008 6:20 AM | Permalink to Comment