Let’s play a game: What would your household income need to be to be part of the 1%? According to the IRS 2014 data, it would take at least $380,000....
Well….not here literally. Shawn Driscoll, manager of the T. Rowe Price New Era Fund PRNEX which focuses on natural resource stocks, explained that he was tracking the opposite direction of oil’s demand and supply. The biggest surprise was the suddenness of the drop. The operating cost curve for the oil industry is about $40 a barrel. With an oversupply of oil and no sight of a cut in production, the current level of oil from $50 to $40 a barrel is the new normal.
The correction will occur the new price is found to eliminate the oversupply. With every oil producer cutting capital expenditures and employees, this is the first start to cut into the supply in the near future. The future oil price per barrel is forecasted at a range of $60 to $70 a barrel. The real question is when this will occur. The Oil market guru didn’t say when but he did agree that a price of $40 per barrel could occur for a short duration.
LEAN SIX SIGMA TEACHING POINT: When dealing with the 7 Wastes, it takes time to correct. In this case we have the overproduction of oil and inventory. Since both are occurring together, it ill take longer to eliminate the muda (waste). The interesting point in this matter is that all of the players involved acknowledge they are contributing to maintaining the wastes in the system, but cannot find a way out. They are in a prisoner’s dilemma. The only way out is for an outside event to occur to assist in eliminating the wastes. Without everyone agreeing to a limit production for a time to reduce inventories, this issue appears to last throughout the 2015 market.
Gary Kapanowski – Lean Six Sigma Master Black Belt – Excelsior
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