The biggest benefit of lower oil prices is if you drive a car, what’s noticed are the lower gas prices, which is one of the biggest expenses of our daily routine. The battle that is the fluctuating oil prices, we as consumers are the benefactors of something that’s completely beyond our control.
In this world of perpetual inflation, what we see is the price of gas falling, this to what they were a decade ago, a good sign. Although the price of oil is beyond our grasp of reality, we’re glad that it’s happening, where the budget is tight.
So unless you’re an investor who owns massive amounts of energy stocks and chose to go long, no one’s disappointed that there’s a war on the world economy that is oil going on right now, but just glad that the gas prices are lower.
The Fracking Oil Production
The simple answer for this is a process known as fracking, which is the production of oil domestically in the United States, allowing them to not import as much. This practice, although it has environmental concerns has recently increased.
Fracking by definition is the process of injecting liquid at extreme pressure, this into subterranean rocks or boreholes, this to force open and create existing fissures, this to extract oil.
Fracking is most notable because of the potential damage it does to the immediate environment, which may be good or bad or yet to be determined, this depending on who you ask.
This is bad news however for the OPEC (Organization of the Petroleum Exporting Countries) nations , such as Iraq, Iran, Saudi Arabia, etc.
These are the countries where oil production is the sole provider of their economy, so there’s a need for these OPEC countries to dominate the world oil market, and they’re willing to take drastic action to do so.
The Battle That Is Oil
Traditionally, what these OPEC nations did was they operated much like a cartel, controlling at will the supply of the world oil, this by regulating the prices exactly where they wanted them to be.
But now since the U.S. is producing its own oil by fracking, OPEC has decided to counteract this is by flooding the world with excess oil. They’re doing so in the hopes to drive the price of the oil down.
Their strategy is simple economics, and that’s attempting to price out the United States from producing their own oil, hoping that the manufacturing process of fracking becomes too expensive because the oil prices are too low.
The idea being that if OPEC drives the price of oil down, that it becomes economically senseless for the U.S. to continue the expensive fracking operations, and what OPEC is hoping for.
The Lower Cost Of Gas
All that the average consumer cares about is that the price of gas is lower, which leaves more dollars in their pockets, what a relief every time we decide to fill up.
There’s a chain effect in the entire economy, the food we eat, the beer we drink, the clothes we wear, are all affected because of lower oil prices. The reason being that physical goods become more affordable to manufacture and transport.
Every item and resource that we consume in theory should be lower. The more dollars that we also have in our pockets because of the savings in gas, is more money that we can spend on luxury consumer goods.
How Lower Oil Prices Affects Businesses
Lower prices can favor smaller businesses who don’t have the same resources to operate like the big corporations do. Larger organizations, although they pay the same gas prices, aren’t as affected as much by the fluctuations.
For instance, a small delivery service who has to make its first delivery in one part of town, and then drive 50 miles to make their next delivery, doing so can become expensive.
But for large transport companies, they may have a dozen deliveries to make in town before they need to make that delivery 50 miles away. Larger organizations have more resources and are more efficient.
The Dictation Of Gas Prices
It’s usually the smaller businesses which stands to benefit when the gas prices fall. One common practice has been adding a fuel surcharge because of the high price of gas in recent years.
Some are removing the fuel surcharge and passing the savings along to the consumer, while others are realizing more healthier profits by keeping their prices the same, as they still include the surcharge.
What lower gas prices obviously does is helps everyone thrive. What traditionally happens is that they’ll usually pass the cost savings along to the end user.
Oil And Alternate Energy Sources
Crude oil remains the premier form of energy for most countries, this especially for developed and developing countries. The importance of oil is that it’s needed for practically everything that we use as consumers, and not just filling up our car with gas.
What the GDP of India and China reveals, is that their economies are growing at a rate that’s faster than what the oil producers are able to supply to the world market.
Because of the volatile oil prices and the effect that they have on manufacturing costs, what then becomes necessary is they finding alternative energy sources other than fossil fuel.
China’s ever increasing demand for natural gas for instance, this as an alternate to oil, further reduces the overall demand for world oil, which drives the oil prices down.
As the largest economies are choosing alternate fuel sources, this combined with the increase of oil production from the OPEC nations, is another reason why the market is becoming saturated with supply, resulting in cheaper gas.