Goldilocks and the price of oil
Monday 7th Jan, 2019
By Zoë Stumpf.
Reflecting on a recent trip to Dubai, I realise that it’s not very often that you hear someone in that part of the world talking about things being “too big”. From the 828m-high Burj Khalifa—still the tallest building in the world—to the supersized, super-stocked aquarium in the Dubai Mall, to the Palm—one of the world’s largest artificial islands, “too big” is the region’s version of “just right”.
But there’s clearly a different kind of “just right” when it comes to oil prices—at least as far as the consulting market is concerned. There was some jubilation in the region when the price of a barrel of Brent Crude hit US$85 in October 2018—its highest for some time. However, by Christmas, prices had once again slumped to less than US$51 a barrel, the lowest for the whole of last year.
Though things have looked a little healthier since then, these recent low prices have given consultants in the region some cause for concern. Achieving a balance in oil prices is crucial to the health of their pipelines of work. Too low a price and government spend on “discretionary” areas such as management consulting comes under scrutiny, which can potentially lead to the plug getting pulled on the type of major infrastructure projects keeping a lot of consulting firms busy—or at the very least, can cause decision making to slow to a crawl. But too high a price can be just as bad. Much of the infrastructure work being sponsored by governments around the region is driven by a desire to diversify away from a reliance on oil to power the economy—and if oil revenues skyrocket, there is a risk that governments may forget—or at least de-prioritise—their ambitions to broaden economic foundations. This could leave infrastructure work in danger of falling away and consulting firms suddenly having to manage a bigger bench. Little wonder then that consultants here are very much hoping for a “just right” scenario, where oil prices provide enough of a budget boost to fund some far-reaching programmes, but don’t get so high that those projects are no longer necessary.
Given the volatility of oil prices over the last few years, it would take a brave person to make bets on where prices will end up in the next few months. It’s all the more frustrating because there’s a lot riding on this and there’s nothing that consultants in the region can do to change things. High on consultants’ wish lists for the new year will be the desire that prices remain in the crucial US$60-80 a barrel range—neither too high, nor too low. Here’s hoping.