Treasury Strategy & Transformation
Published  6 MIN READ
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The Impact of Lower Oil Prices on Industrials: Looking Beyond the Obvious

by Steven Elms, Head of Industrials, EMEA, Treasury & Trade Solutions, and Sameer Sehgal, Head of Trade, EMEA, Treasury & Trade Solutions, Citi

Steven ElmsSameer Sehgal

The consequences of the halving of oil prices in recent months are more complex than generally thought. The motivations and business strategies of industrials clients must be scrutinized to ensure that appropriate treasury solutions, trade finance and support are made available, according to Steven Elms, head of industrials, EMEA, TTS and Sameer Sehgal, head of trade, EMEA, TTS.

The dramatic fall in the price of oil, which has more than halved since June 2014, has potentially profound implications for industrials companies. All corporates in the sector – which spans sub-sectors as diverse as automotives, aviation and aerospace, shipping, logistics, paper and packaging, heavy machinery, cement, power technology and construction – are impacted by the price move. However, the implications for each sector vary.

At a basic level, lower oil prices will reduce input costs and working capital requirements for large energy users, such as airlines, freight and shipping, chemical, plastics, heavy manufacturing, and any business with high transportation costs. As a result, these companies will benefit. In contrast, companies that are directly involved in, or dependent on, the oil and gas sector will come under pressure, including oil services companies, and heavy industrial manufacturers supporting oil exploration and production.