Monday, April 25, 2011

Oil Prices, Supply Disruptions, and Enterprise Storage

The linkages between oil prices and our little niche of enterprise storage may seem obscure, but in a global marketplace a small disruption or price fluctuation can cause unexpected anomalies in the supply chain of energy, production and information storage.

An article in the Financial Times today pinpoints some issues and possible outcomes.

* "Say what you will about the various causes of past U.S. recessions, but economists at HSBC offer a sobering observation. Since the 1970s, a doubling of the real price of oil, which is the oil price relative to overall inflation, within the span of a year has almost always been followed by declining GDP. The two exceptions are the 1990-91 recession, when prices spiked but did not quite double, and 1987, when prices did double, followed by slower growth but no recession. Today, a doubling would require prices to rise to about $150. "

* "Looking across the global economy, separate studies at Morgan Stanley and Barclays Capital do not suggest a total derailment of the global recovery, but do imply a serious bout of 1970s-style stagflation, a combination of sluggish growth with high inflation. The Barclays analysts conclude that a rise to $150, if sustained at that level, would cut global growth by about 0.75 percentage points, while adding as much as 3 points to global inflation. Morgan Stanley, using a different approach, would expect a 1 percentage point loss of growth and 1 additional point in inflation as result of oil at $140. The global economy, including fast-growing emerging markets, is generally expected to grow about 4 percent this year; it is said to be in a recession when growth dips below 3 percent."

* "The big worry right now is the combination of inflexible fiscal policy and still-fragile credit markets, say the HSBC analysts, especially in developed economies. Their government budgets are already stretched and unable to offer much support in case of a recession, and their economies may not yet be strong enough to withstand the higher interest rates that central banks might use to keep inflation under control. That means a spike in oil prices could not come at a worse time, and once again the global economy is at the mercy of its oil supplies."

What does this mean for the Enterprise Storage business? It is hard to tell, but if IT folks find their budget tightening, we hope they will consider our affordable support for their NetApp equipment as one way to save on their storage infrastructure.

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