Strategy

How Oil Prices Are Affecting Business

More than one-third of executives in a new survey believe that their companies are vulnerable to rising oil prices and are scaling back expectation...
Stephen TaubAugust 19, 2005

The relentless climb in the price of oil is starting to take a toll on the nation’s largest multinational companies, according to a new survey by PricewaterhouseCoopers.

More than one-third of the 150 senior executives interviewed by the firm believe that their companies are vulnerable to rising oil prices and are scaling back expectations for revenue growth, new jobs, and investments, according to PwC.

As a result, just 56 percent of this group remain optimistic about the economy in general. Of those respondents not concerned about the price of oil, 66 percent continue to be optimistic, although this figure has fallen from 80 percent in the prior quarter, according to the survey.

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“In the second quarter, business leaders saw oil prices cross the $60-a-barrel marker for the first time,” said John O’Connor, vice chairman of PricewaterhouseCoopers, in a press release. “It remains to be seen whether their reduced growth estimates, capital spending, and hiring plans represent a temporary case of the jitters, or a signal of something more.”

Indeed, 52 percent of respondents reported that higher oil prices are having a strong (23 percent) or moderate (29 percent) negative impact on profit margins of companies in their industry. And 36 percent see higher oil prices as a prospective barrier to their company’s growth. These oil-conscious businesses are projecting an average 5.9 percent revenue increase for the year ahead, compared with 7.9 percent for all others.

In addition, 35 percent of the oil-conscious businesses plan to increase staffing over the next 12 months, compared with 52 percent for all other companies. And only 39 percent of oil-conscious businesses plan major new capital investments during the next year, compared with 51 percent; their expected level of spending averages 5.2 percent of revenues, compared with 9.7 percent.

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