NYT article What bourbon producers can teach the oil industry

[imbibehour]

Read this article, and honestly felt this was a bit of a stretch ??? to draw parallels to in some ways. http://www.nytimes.com/2014/11/18/business/what-bourbon-producers-can-teach-the-oil-industry.html?_r=0&abt=0002&abg=0 I am not sure this is a good comparison, for one thing how hype drives demand for example. what do you think? You think this is a good analogy? Curious to hear what others think.

[dementedavenger]

The writer employed a bad analogy. The discussion about when to make capital investments in a cyclical industry makes sense but comparing a commodity to a discretionary product typically doesn't.

[portwood]

The writer employed a bad analogy. The discussion about when to make capital investments in a cyclical industry makes sense but comparing a commodity to a discretionary product typically doesn't.

That summarizes the weakness of the argument very well.

Price anomalies in discretionary products (whisky) create a few line-ups by a small portion of the population at a few select specialty shops.

Price anomalies in economically necessary commodities as suggested by the writer* create mass shortages and mile long line-ups at ALL gas stations in the country. The vast majority of the population needs gas simply to get to work.

*he suggests the oil industry should keep prices down (like the van Winkles are doing with MSRP) in order to keep customers for the long-run. Problem is that customers don't choose to consume oil like they do whisky. They NEED oil (no perfect alternative exists at the moment), whereas they can switch to other spirits very easily if whisky is expensive and/or scarce.

[RWBadley]

That summarizes the weakness of the argument very well.

Price anomalies in discretionary products (whisky) create a few line-ups by a small portion of the population at a few select specialty shops.

Price anomalies in economically necessary commodities as suggested by the writer* create mass shortages and mile long line-ups at ALL gas stations in the country. The vast majority of the population needs gas simply to get to work.

*he suggests the oil industry should keep prices down (like the van Winkles are doing with MSRP) in order to keep customers for the long-run. Problem is that customers don't choose to consume oil like they do whisky. They NEED oil (no perfect alternative exists at the moment), whereas they can switch to other spirits very easily if whisky is expensive and/or scarce.

Much easier and safer to bunker whisky than gasoline... Gasoline also is a 'just in time' product, than bought beforehand for far future use.

[bllygthrd]

Have to agree with the above posters ... he tries to make the supply, demand and market share argument comparing a commodity product (oil/gas) and a specialty product (bourbon) ... The chemical industry learned long ago that they are two completely different business models. One is high volume/low profit margin and the other low volume/high profit margin. Very little differentiates commodity products other than price. If EXXON gas is cheaper than Shell, we buy from EXXON. Specialty products differentiate themselves, in the case of bourbon its taste. Poor comparison.

Edited November 20, 2014 by bllygthrd

[TheNovaMan]

If EXXON gas is cheaper than Shell, we buy from EXXON. Specialty products differentiate themselves, in the case of bourbon its taste. Poor comparison.

Although gasoline and bourbon are not at all a good comparison, there are automotive enthusiasts who would rather pay the extra three cents a gallon for Shell instead of no-name gas. I am one such person. (Gas that's actually 100% gasoline is even better, but that's WAY more than a 3 cent difference... if you can even find it.)

[cowdery]

I think the editor's reasoning went like this. "Oil is boring. Whiskey is cool. So let's do a story about oil that looks like it's about whiskey." The analogy, as others above have explained better than I can, is ridiculous.

[Bourbon Boiler]

So the product with the publicly traded hedging vehicle is hard to manage but the product without one and that is also subject to whims of the public runs like clockwork? Bad article.

[imbibehour]

Yup pretty much thought it was a bad analogy, also figured others would get a kick out of it...