Oil price - more pain still

29 June 2008

One of my friends runs a civil engineering company and quite successful it has been in recent years too. He has made a good living out of it despite the vagaries of dealing with large quoted customers in the water sector.

He sent me an email last week saying that the last 6 months have seen a rise in their diesel costs of £146,000 in 6 months. Over the next 6 months if prices stay the same as they are now (at $142 barrel) then they could see a further cost increase of £200,000.

This guy runs a tight ship with monthly budgets carefully worked out in advance, these are being "blown out of the water". In fact the company could end up with a loss and that will affect his bank covenants. So he is talking to the customers about raising prices to compensate and without that the business could go from being profitable and doing well to distress in 12 months.

The real world impact of soaring oil prices, will be felt by this company and may lead to job losses, bank pressure and firefighting

Keith