The Market: Falling gas prices and the lure of Netflix

A lot of interesting events have occurred in the last week since last Tuesday’s introduction article on crude future’s major decline over the last three months. Crude future prices are nestling right in between $45 and $50 per barrel, short term. This means that for the time being, gasoline prices should stay about where they are until major drillers reduce supplies of crude in the United States and in the Middle East. The gasoline you fill up in your car is a refined product derived from drilled crude. Crude prices and gasoline prices are related, and in turn, as the price of crude falls, so do gasoline prices.
If you open or watch any financial news lately, you will find countless people worrying about where crude prices are heading. There is major pressure coming from overseas in the Middle East, casting dark spells over the entire world. Reporters look like they need high blood pressure medication and are beyond their tolerance for volatility in today’s crazy market swings. They have good reason to look like a sweaty red pig on television. Countless institutions and companies are relying on crude prices to shoot back up to sustain profitability. The major problem is the news that came from the Middle East. This past month the Organization of the Petroleum Exporting Countries announced they were not going to reduce supplies, stabbing crude prices in its heart. OPEC is comprised of the following countries: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. One day crude prices are up 5 percent and the other they are down 12 percent. Just this past week gas prices hit rock bottom as I filled up my car’s gas tank at Kroger for $1.59 per gallon. These major price declines in crude are forcing companies to cut jobs because at the current price, profits are either soon turning into losses or already are. There are a lot of economic situations that could play out, and many of them do not look good for major companies, jobs and sustainability. 

This past week, the king of Saudi Arabia passed away, creating optimism and doubt for the crude industry. No one is sure if Saudi Arabia’s new king will implement different legislation to remove supplies to drive prices back up. Based on their sentiment and past behavior, it is not looking quite good for prices to reverse and head back up.

In company news, Netflix announced they received more than 4 million new, paying subscribers, re-emphasizing their amazing business model and increasing cash flow. I have not met one person who is not familiar with Netflix. Just about every person has used Netflix or used their friend’s Netflix account.  The streaming media service is a unique company in of its own right. They created a whole new dimension in the media industry. They made household brick and mortar DVD and VHS rental businesses go bankrupt.  Do you remember Blockbuster? Or those smaller media rental companies like Hollywood Video? Almost all of the physical rental locations have gone out of businesses or bankrupt with the advent of mobile and online media streaming content. In business growth and expansion, a company needs to attend to changing technology. Netflix is a remarkable company from which we can learn a lesson. They have changed the landscape of online media and created strong competition amongst Amazon, Apple, Microsoft and other smaller technology companies. Netflix’s business model of paying media companies a small fee to stream their content to paid subscribers is genius. Netflix does not produce a physical product nor do they have to deal with customer returns. They re-invented how you acquire your media addiction through mobile and online platforms that are easy to stream. For some reason, media will always attract viewers. Whether it is an old movie or recently added show on HBO, viewers will keep coming back. It is one of our favorite past times along with a bowl of ice cream when we watch Netflix.

So as you fill up your gas tank or watch your favorite episode of “Friends” on Netflix, don’t forget that they are both expertly crafted entities of an ever changing-economy.

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