Why Can Low Oil Prices Help Smaller Non-Operator Businesses?
After the Covid 19 outbreak in mid-2014, oil prices have plummeted. The global economy is already feeling the effects of this downturn. Crude oil plunged below €20 for the first time in two decades in late April 2020. When oil prices fall, many industries that depend on it are expected to benefit significantly. The dropping prices are expected to help consumers as well, resulting in a lower cost of living.
However, this is not a typical situation in which the vast majority of companies will profit from lower prices. For example, airlines that would otherwise profit from low oil prices are grounded, and there is little activity. However, there are some industries that are expected to profit from the drop. Many of the industries that have benefited from the drop in oil prices include:
1. Industry of commerce: The trading industry is expected to benefit from rising consumer spending as real household incomes rise as oil prices fall. And two main factors influence this. The cost of consumer products is decreasing overall. Household goods rates have dropped, resulting in significant savings. Real wages would rise, resulting in an increase in consumer spending. A rise in consumer power would encourage a variety of trading practices. Furthermore, lower production costs as a result of lower oil prices, which affect a variety of high-cost commodities, would lower inflation. If the price of oil falls, so will the cost of producing products. More consumers would be able to afford commodities if they are less expensive. Cheaper goods mean more consumers can afford them, which means more profits for merchants.
2. Industry of transportation: The transportation industry is driven by oil. For cars, planes, and ships, it is the most dependable, powerful, and safest source of fuel. As oil prices decline, these industries’ operating costs are expected to drop dramatically. With more and more countries flattening their coronavirus curves, the global economy is expected to reopen soon. As a result of low oil prices, transportation is expected to recover.
3. Tourism is a growing industry: With oil prices dropping, personal transportation will become more affordable. In the coming days, an increasing number of people are expected to fly around the world. Plane fares would be less expensive, allowing more people to travel to their dream destinations around the world. It will also become less expensive for local visitors who choose to drive across the world. The increased number of visitors is expected to benefit major tourist attractions and lodging facilities.
4. Industry of Pharmaceuticals: Pharmaceutical companies use a lot of resources in the manufacturing of their products. Oil is also used as a raw material in the production of certain pharmaceuticals. Most pill capsules, for example, are made from oil derivatives. Petroleum by-products are used to make other products including creams and tropicals. As a result, it is fair to assume that any increase in oil prices will result in a decrease in the industry’s cost of production. It remains to be seen whether or not this value would be passed on to the customer.
5. Industry of Chemicals: Oil drives the chemical industry, just as it does the pharmaceutical industry. With oil prices dropping, the industry is expected to profit greatly. Many of the industry’s end goods depend on petroleum as a main raw material. Since crude oil is an organic compound, it is usually used to make larger and more complex compounds. Around 10% of refined crude oil is used by chemical industry players, according to estimates. Crude oil is used by companies that make paints, cosmetics, solvents, and topical coatings. Many of these producers would also benefit from lower production costs as raw material prices decline.
6. Agriculture as a company: Agric businesses depend on oil to produce food to bring their products to market. Petroleum products are also used to make agricultural inputs like fertilizers and pesticides. Because of the lower price of fuel, the manufacturing of these essential components would be less expensive. Farmers would also spend less money getting their produce to market. And as fertilizer and pesticide prices fall, the yield per square foot will rise.
7. Rubber manufacturing: Rubber product manufacturers are expected to benefit greatly from lower oil prices. Rubber products, such as automobile tires, are made with oil. The automobile industry would also profit indirectly from lower tire costs as a result of lower oil prices.
8. Automobile industry: With gas prices dropping, an increasing number of people can afford to fill up their vehicles. Due to the low cost of gasoline, it is expected that demand for gas-guzzling vehicles will increase soon. Car producers and other supply chain dealers profit from low gas prices at the pump.
9. Industry of the airline:
The airline industry is happy to hear that gas prices are dropping. Lower operating costs and an increase in the number of travelers seeking to take advantage of lower ticket rates would help the industry. Airlines, on the other hand, are considered to be resistant to reform, so it remains to be seen if they can reduce ticket prices.
10. Retailers on the internet: Cheaper oil means better fortunes for online retailers. They will not only benefit from lower operating costs, but they will also generate more orders as customer power grows. Stores will spend less money shipping their products from suppliers to customers. Operating at a low cost is a good thing.
Oil prices are rapidly declining. Despite the fact that this is bad news for oil producers and oil-producing nations, it is party time at the pump and for the industry players we discussed earlier. Every sector of the economy is fueled by oil. Any fluctuations in the price of a vital product have a significant impact on major economic activities.
The recent drop in oil prices is expected to help a stumbling global economy get back on its feet. Oil prices, on the other hand, are forecast to rise in 2021. And it’s unclear whether the current downturn will be enough to repair the damage COVID19 has wreaked on the global economy.