Business

Why Low Oil Prices Will Benefit Smaller Non-Operator Companies?

Covid 19 outbreak has seen a dramatic fall in oil prices since mid-2014. This decline is already having a significant impact on the global economy.  In late April 2020, crude oil fell below $20 for the first time in two decades. Normally, when oil prices fall, several industries that rely on oil are expected to reap big. Consumers, too, are expected to benefit from the falling prices, which means a lower cost of living.

However, these are not normal times where a vast majority of industries would benefit from the falling prices. For example, airlines that would otherwise make a kill out of the low oil prices are grounded, and no much activity is going on. But still, there are specific industry sectors that are set to benefit from this fall. The following are some of the sectors that are benefiting from plummeting oil prices:

about low oil prices

Trade industry

With real household incomes rising as oil prices fall, the trading industry is set to benefit from the increasing consumer spending. And this is informed by two major factors. The overall consumer goods prices are falling. The fall in the prices of household goods translates to mare savings. Real wages will increase, which will result in increased consumer spending. An increase in consumer power will spur several trading activities. Besides, the lower cost of production resulting from a fall in oil prices, affecting several intensive goods, will also reduce inflation. As oil gets less expensive, the manufacturing of goods will be cheaper. Cheaper goods mean more people can afford, which will translate to better sales for traders.

Transport industry

Oil drives the transportation industry. It is the most reliable, efficient, and safest source of power for cars, planes, ships. As the oil prices fall, operational costs in these industries are set to come down drastically. With more and more countries flattening the coronavirus curve, it is expected that the world’s economy will be reopened soon. Transportation is therefore set to rebound driven by low oil prices.

Tourism industry

With falling oil prices, personal transportation is set to be cheap. More and more people are expected to travel the world in the coming days. Plane tickets will be cheaper and more people will afford a vacation to their dream destinations across the world. It is also going to get cheaper for local tourists who prefer driving around the country. Major tourist destinations and accommodation facilities are set to reap big from the increasing number of tourists.

Pharmaceutical industry

Pharmaceutical companies consume a lot of energy in the production of drugs. Oil is also used as a raw material in making some drugs. For example, most pill capsules are made from oil derivatives. Other products such as creams and topicals are made from petroleum by-products. It is, therefore, safe to conclude that all in oil prices will result in the reduction of the cost of production in the industry. Whether or not this benefit will be transferred to the consumer remains to be seen.

Chemical industry

The chemical industry, just like the pharmaceutical industry, is driven by oil. And with falling oil prices, it is expected that the industry will benefit a lot. Petroleum is the key raw material in many of the industry’s end products. Typically, because crude oil is an organic compound, it is used to create other bigger and complex compounds. It is estimated that players in the chemical industry use about 10 percent of refined crude oil. Chemical firms dealing in paints, cosmetics, solvents, and topical coatings rely on crude oil. And with falling prices of the raw material, many of these manufacturers will benefit from a lower cost of production.

Agricultural industry

Players in agriculture depend on oil to produce food and get their produce to the market. More importantly, petroleum products are used to make farm inputs, such as fertilizers and pesticides. Manufacture of these critical components will be cheaper, owing to the falling prices of petroleum. Besides, farmers will spend less to get their produce to the market. And when the cost of fertilizers and pesticides drops, the yield per square foot will increase

Rubber industry

Manufacturers of rubber products are set to benefit immensely from the falling prices of oil. Rubber products such as car tires depend on oil for its manufacture. The car industry will also indirectly benefit from the falling cost of car tires due to falling oil prices.

Car industry

With falling prices at the pump, more and more people can afford to fuel their cars. It is expected that the demand for gas-guzzling vehicles will rise soon, owing to the low cost of fueling. Low gas prices at the pump spell fortunes for car manufacturers and other value chain dealers.

low oil prices

Airline industry

Falling pump prices are welcome news to the airline industry. The industry will benefit from lower costs of operations and a higher number of travelers looking to take advantage of the falling prices of tickets. However, airlines are known to resist any changes, and it will remain to be seen whether they will reduce the cost of tickets.

Online retailers

Cheaper oil translates to good fortunes for online stores. Not only will they benefit from a lower cost of operations, but they will also receive more orders because of increasing consumer power. The stores will spend less to ship their goods from the manufacturers and across to the consumers. Low cost of operations means better profits.

Conclusion

Oil prices are coming down fast. Although this is bad news to the oil companies and oil-producing countries, it is party time at the pump, and for the players in the industries, we have discussed above. Oil powers every sector of the economy. Any price changes in the essential commodity influence major economic activities.

It is expected that the recent fall in oil prices will help a hailing global economy back to its feet. However, oil prices are expected to rebound in 2021. And it is hard to establish if the current slump will be enough to heal the ravages that COVID 19  has visited on the world economy.

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