I can drive and have a driver’s license, but discovered long ago that when you live downtown, as I do, in a city with a very good public transportation system, the expenses of owning a car are just money flushed down the toilet. When I need a car, there’s always ZipCar and when they don’t have a car handy when I need it, I can swallow hard and incur the expense of a taxi. That still works out considerably cheaper than owning and operating a car. And that’s still true with today’s gas prices which are down to or approaching $1.50 a gallon in many places.
My independence of a car leaves me on the sidelines of the trials and tribulations of day to day auto operation at the fuel pump.
I know that fuel costs figure into the price of almost all consumer products, though I haven’t noticed a correlating nosedive in consumer product prices just yet. I think the businesses are doing some welcome (to them) profit-taking in that regard.
So, people operating cars are, for the most part winners. I say “for the most part” because people who work in petroleum-related energy industries are experiencing cutbacks and layoffs.
They aren’t the only losers, either. Any person or industry who decided to lock in a price tied to a minimum delivery commitment before the price of petroleum went into freefall is probably experience a lot of lock-in remorse. This will include some airlines, which might put them at a severe disadvantage to airlines which did not, though the airlines (such as American) which took a chance on free market fuel don’t seem to be passing the savings along in lower ticket prices. It does insulate them, though, from attempts by other carriers who might otherwise think about starting a ticket price war.
Other losers include retirees whose monthly checks depend heavily on oil industry profits and/or other industries which thrive based on selling to the oil industry. So, maybe it keeps the price of a laptop computer, tablet, or smartphone down for a college student, while his grandparents are discovering that their monthly retirement checks have dropped 25% recently (the amount will obviously vary depending upon what sorts of investments their retirement plan has made).
Russia, of course, is a major loser. Much of Russia’s remaining income has come from selling oil to its neighbors, but it can’t get away with charging more than market, and right now petroleum is dirt cheap. With much of Russia’s former income out of reach due to sanctions from the U.S. and other countries displeased with its actions in the Ukraine, Putin is finding himself on the hot seat.
Another category of losers you might not think about at first is the alternative energy industries. Solar panels, windmills, and other technologies designed to reduce the use of petroleum will take a hit as long as the price remains low.
Finally, let’s not forget the oil industry’s recent heavy investment in fracking, which produces oil at a higher cost than simply pumping it out of the ground. Defaulting on loans and bonds could hurt the industry for years to come once that starts happening.
In the worst case scenario, cheap oil could depress the entire world economy.
I’ll finish up with the Motley Fool summation:
Don’t get me wrong, I love paying less at the gas pump and to heat my home. But I also recognize that the recent boom in shale oil and ultra-cheap credit has left many oil producers up to their eyeballs in debt. In a highly complex world, where junk bonds are owned by banks, investors, and even pension funds, a series of bond defaults could have a powerful domino effect that might impact not just the United States, but also global credit markets.
In addition, the decline in new oil investments could result in a large number of layoffs within the oil and gas industry, which is responsible for 7% of U.S. gross domestic product.Should energy bond defaults result in a credit crunch this could drastically lower the energy market’s access to credit in the coming years. That in turn could result in far slower oil production growth and higher energy prices in the future. (source)