Crude oil prices have been on a decreasing trend for quite some time now. In the last few months, crude oil prices have dropped by close to 25%, brining good news for airlines and express delivery service providers. Currently, oil prices are hovering around $49 per barrel. This reduction has definitely created an impact in almost all the industries and thereby has some effects on the economy either positively or negatively. While some sectors have benefited hugely from this, there are certain other corporate sections (manufacturers of crude oil, chemical industry etc.) that were adversely affected. Let us now look at the big gainers and losers of reduced oil prices in the section below:
Gainers
In the list of beneficiaries of reduced oil prices, the first and undoubted winner is the airline industry. Lots of airlines have reported increase in revenues and net operating incomes for the last quarter of 2014.Reduced oil prices have also spelt new hopes for 2015 for this industry. The main expense for an airline industry is fuel. For the year 2014 alone, at least $51billion was spent by all US airlines on fuel charges. Any slight change in fuel prices (either increase or decrease) affects the financials of the airline industry severely. A rise or fall of one penny per gallon is equivalent to change in financials to the tune of $190million of annual fuel expenses for this sector. JetBlue Airways (JBLU, Financial), Volaris (VLRS, Financial) and Virgin America (VA, Financial) are some of the top gainers due to reduction in fuel prices and their stocks are expected to soar quite high during 2015.
The other sector that is all set to gain from the reduction of crude oil prices is the express delivery section. Some of the top most gainers in this sector are FedEx Corporation (FDX, Financial) and United Parcel Service (UPS, Financial). However, the top financial experts at these companies believe that only when reduced fuel prices are accompanied by a reduction in fuel surcharges, they will see real profitability. As long as fuel surcharges are not reduced, the benefits from low crude oil prices would be offset by the steep surcharge rates. Usually it takes a couple of months for surcharges to mirror the changes in fuel rates. Hence, by February 2015, surcharges might be reduced, spelling good news for this sector.
The automobile sector too has gained a lot from the slump in crude oil prices. Many brands saw a huge increase in the sales of its sports utility vehicles during the latter part of 2014. Though these SUVs consumed more fuel than the smaller models, the demand for them was quite huge, because of the drop in crude oil prices. General Motors (GM, Financial) reported an increase of 16% in the sales figures of the Chevrolet Suburban model and Ford Motors (F, Financial) saw an increase of 9% in the sales figures of the F-150 model in 2014.
Losers
Automobile makers are sitting on huge piles of small and fuel-saving cars in their godowns as not many people prefer them of late. Since oil prices have reduced considerably, people are only opting to buy large SUVs that emit lots of gas into the air. Automobile giants like Ford and General Motors have expressed their inability to contribute to the green environment, because of this scenario. While large and high-fuel consuming vehicles like Suburban are selling like hot cakes, other small, lightweight and low-fuel consuming vehicles like Sonic and Spark are not moving from the warehouses at all.
The second most affected segment is the chemical industry in the US comprising of companies like Eastman Chemical (EMN, Financial) and Monsanto (MON, Financial). These companies spend loads of money on petrochemical products that are exported to various countries. The basic raw materials for these petrochemicals are petroleum and natural gas. Polyethylene is one of main petrochemical products that are made from natural gas liquids. The US enjoyed a clear advantage over its European and Asian counterparts all these days because these countries could not afford the high rates of crude oil prices. However, of late, since crude oil prices have fallen down considerably, it has become highly reasonable for the all the countries. The US has not only lost its monopoly in the petrochemical industry, but it has also lost its profit margin to a great extent.
Conclusion
The continuous reduction in the crude oil prices might not bring about too many positive impacts in the long term; one has to wait and watch how the global economy would fare at this pace. The real impact of the reduced oil prices would be reflected in the economy only after the completion of the first quarter of 2015.
