The Power Of Oil And Its Recent Slump

Worried that your project might be the next one affected by the recent crude oil price increase? 

Closing 2014 oil prices were 49% in decline, back then we feared it could reach the all time low we saw in 2008 where oil dropped 67%. Now in 2022, crude oil prices saw a 40% increase reaching an all time high and getting very close to the 2008 recession highest oil prices. 

The infographic below shows the big oil prices fluctuations from 1946 to 2022, and according to the data there’s still hope. Increasing oil production is slowly dropping the prices per barrel. 

So, how do these fluctuations really affect construction projects? 

All construction projects will show increased costs due to the direct and indirect effects of oil price increase and its accompanying economic inflation. The projects hardest hit will be those related to transportation because their costs depend heavily on oil derivative products such as diesel. 

The oil price influence will also be felt in general construction projects, airlines, employment, and other areas. Inflation will increase material prices. Material delivery times will also increase due to rising trucking and delivery costs.

Construction companies might be discouraged from taking on new projects due to inflation and rising costs. This would lead to lower employment rates as the rise of oil prices will decrease levels of economic activity thus lowering productivity, profitability, and demand for labour. 

Also, construction stocks are under pressure with rising crude prices. “Crude prices have gained over 47% while the ET Construction index has lost 7.6%. Analysts expect the earnings of construction companies to impact if crude prices remain high.”

In fact, the construction industry is expecting a boom due to increased government funding predicted to create 3.2 million jobs (approximately a 30% increase). However, for an industry that already struggles with attracting new workers, the fluctuations in crude oil prices and its recent skyrocketing are expected to attract more of the construction sector workforce due to higher wages. This can only be mitigated by a substantial increase in construction sector wages that does not seem likely with the increasing construction costs caused by oil fluctuations. 

The Future Ahead

The future trend of oil is unpredictable. The prices are dropping slowly as oil production and supply are increasing. So let’s hope that the oil trend gets back to normal so projects stay profitable.

The Power Of Oil And Its Recent Hike [INFOGRAPHIC]
Courtesy of: macrotrends

Michael is an avid project controls blogger and is the Chief Learning Officer here at Plan Academy. Michael has taught 1000s professionals how to use project controls software like Primavera P6 over the past 10 years through his online courses and tutorials. Michael is a member of AACE, the Guild of Project Controls and holds his PMP certification from PMI.