It can be said that the world’s economy moves to the beat of commodities. The production of cement, concrete, coffee, minerals, gold, and silver are just some of the most important commodities whose variation in prices can either boost an economy or bring it into recession. However, perhaps no commodity is more important than oil. Many countries, especially the ones that belong to the Organization of the Petroleum Exporting Countries or OPEC, depend on the extraction of oil from the ground to fuel their economy (pun intended). 2017 has not been kind to the oil industry. Oil prices have reached lows that haven’t been seen in almost half a year and the trend doesn’t seem to be nearing its bottom. The reason for the continued drop in oil prices can be explained as a result of an oversupply of crude dating back to last year and oil producing countries general resistance to cutting down on production. Some sectors are benefiting from the drop while others are being damaged by it. Suzzanne Uhland is here to share some thought on who is getting a boost and who is having a hard time thanks to the drop in oil prices.
1 . The transportation industry
There is probably no industry which is impacted the most by fuel industry like transportation of goods is. When oil prices are at their highest, transportation and logistics companies have to raise the prices of their services in order to move merchandise cross country. However, when prices fall, this industry can afford to consume more fuel and thus move more merchandise around the country. The more goods they can move the higher the profits they will have. It’s that simple.
2. The automobile industry
When oil prices fall, automobile companies are more likely to sell more gas-guzzling models. Sports utility vehicles and trucks are always in demand but high gas prices mean that consumers have to spend big on filling up the tank. However, if the price of oil drops, then so should the price of gasoline. When that happens, a consumer is more willing to spend a little extra on a car which consumes a little more gas, but which brings more status to the person’s life.
3. The service industry
While oil is not really needed in the service industry, it is still affected by how prices move. The service industry includes restaurants, leisure activities, and the traveling industry. For the average Joe and Jane, low gas prices are reflected in lower gas prices which in turn allow families to go out more and have a night on the town more often. Saving on going to the gas station means spending on free time activities.
1. The oil industry
This industry loses huge when oil prices drop. Thanks to the current oversupply and less demand, oil companies are forced to drop prices in order to clear operating costs and make the same amount of profit. Unless something extraordinary happens, oil companies could be heading towards the red by the end of the year, something that seemed unfathomable a while back when the industry was ruling the world.
2. Hybrid and electric car companies
Hybrid cars don’t depend completely on gasoline while electric cars have no need for it at all. Low oil prices mean fewer people are like to acquire environmentally friendly vehicles and thus the effort to help the environment could be thwarted.
3. Oil dependent nations
Here is by far your biggest loser when oil prices plummet like they have been doing. Countries whose gross national product is significantly represented in their abilities to sell oil are greatly affected by an oversupply of barrels and low oil prices. The lower the price of the barrel the less money a country has to invest in the things that will help the economy grow. Additionally, low oil prices mean that a nation can’t send as much royalties as they are used to sending to states which lead to a cut in local programs. If oil prices continue on the drop, oil-dependent nations must start considering alternatives that can help them fill the void left by low prices in crude.
We still live in a world which relies on oil for many things. Whether it be to manufacture goods, transport them, or selling petroleum to other countries, oil is arguably the most important commodity out there. Countries who produce it must start seriously considering cutting back on production in order to deal with the surplus of demand that is currently affecting the industry. While supply exceeds demand in the proportion in currently does, there little companies and countries can do to help oil prices rise again and get back to where they were a couple of months ago. If oil producing companies continue to produce at the rate they are producing nowadays, we can all expect a continued drop in oil prices.
For more insight on what happens in the oil industry, don’t forget to check Suzzanne Hulland’s blog. For example, if you don’t understand how gasoline pricing works, definitely check out the post “How to Understand the Prices of Gasoline”.
* Featured Image courtesy of Pixabay at Pexels.com