America is simultaneously among the world’s largest consumers, importers and producers of oil, so the recent drop in oil prices has been interesting. There will be winners and losers, and it is not entirely clear who is who yet.
But you’ve probably already rejoiced while filling up your gas tank to the tune of less than $50, you might have even tweeted a picture of the unbelievably low gas prices. Or maybe you’re skeptical about how long the good luck will last. Either way, the drop in oil prices is affecting you, whether you know it or not.
1. More SUVs on the road
First, the obvious. Falling gas prices will impact driving habits. People are going to drive more often, get into more accidents, register more cars, and buy more cars, particularly big cars – because they can. Filling up the tank on a gas guzzler is currently less cost-prohibitive, so you can bet you will see more single-passenger SUVs driving again.
Ben Foulds, a Society of Motor Manufacturers and Traders spokesman says that it is too soon for the auto industry to know what changes will be made to the kinds of cars people are buying, but it has happened before and it may be happening again.
In the 1990s crude prices fell to $20 a barrel, which led to a glut of SUVs. Auto sales have surged in the last few months, and while all types of vehicles made gains, sales of trucks and SUVs have spiked particularly high. These days cars are made of lighter material, giving even big cars much better gas mileage than in the ‘90s, and consumers more reasons to spend the money they are saving on gas on a car.
2. Plastic products become cheaper
While the energy industries are struggling, the plastics industry is well situated to take advantage of the cheaper petrol prices and make a profit. The plastics industry is both directly and indirectly benefit from this situation.
For companies producing plastic goods, and anything else manufactured with petroleum products, the cost of production will be drastically reduced. Petroleum is a major feedstock for producing the plastics we use in everyday products, and a drop in fuel prices will make it cheaper to ship to your door.
In addition to plastics, here are a few other petroleum based-products to stock up on while you can: nylons, tires, crayons, guitar strings, roof shingles, candles, paint, insecticide, skis, cosmetics, and dentures.
3. Investment opportunities open up
So, if you’re going to invest, we have one word for you: plastics.
For individuals, lower gas prices are like a tax break and increased spending power will result in an uptick in investing, particularly in discretionary businesses. But be careful. This is not a good time for the energy companies, and they are one of the biggest stimulators of the US economy, and a slowdown in energy could ripple across other markets.
What does this all mean for your portfolio?
“You evaluate your true willingness, ability, and need to take risk. Then strive for the right amount of risk in your portfolio. That’s generally the amount of risk you can stomach while still having acceptable odds of hitting your long-run financial objectives,” said Manisha Thakor, director of wealth strategies for women at Buckingham and The BAM Alliance, in a blog for the Wall Street Journal.
“Even if you have the best of financial plans, assuming more risk than you should take on may cause that plan to end up in the financial trash heap as emotion overtakes logic.”
4. Farmers get a boost
The food industry consumes more fuel than almost any other. In fact, to produce a dollar of farm output, it takes five times as much energy as it does to produce as a dollar of manufactured goods, according to John Baffes of the World Bank. From fertilizers, to electricity to pump water from aquifers, to transportation, the food industry is saving money at every turn. People in countries that depend on agriculture, as the US does, are one of the few clear winners in this situation.
5. The neighborhood drilling rig could go quiet
In the past, companies doing hydraulic fracturing have gone to pretty extreme measures to get nearby residents to stop complaining about noise and other issues. EQT Corporation in Pennsylvania paid all the residents of Cardox Road $50,000 in cash to release the company from any liability for current and future operations.
But considering the litany of inconveniences the Washington County residents have to endure at EQT’s expense for an undetermined period of time, $50,000 seemed a little stingy to some. The agreement covered all current and future cases of health problems or property damage, complaints regarding noise, smoke, air pollution, water pollution, and the construction of pipelines, compressor stations, roads, and buildings, just to list a few.
But as oil prices fall, this expensive extraction technique will become less economically viable, and the US fracking industry may slow.