Consumers within the United States certainly have a love-hate relationship with gasoline. People absolutely adore the convenience of owning a vehicle, but despise paying excessively for gasoline. Over the past few months, oil prices have remained surprisingly low and this has encouraged consumers to spend more. Whether or not the low prices will remain for the long-term remains to be seen, but consumers should take advantage of the opportunity currently handed to them. Many consumers fail to truly understand the impact of oil prices. Not only does this factor into your personal life, but these prices can also play a major role in shaping the global economy.
One does not need to look any further than Russia to see how devastating low oil prices can be for a country’s economy. When prices sunk to all-time lows, the ruble experienced a significant devaluation and stock market prices fell sharply. Also, the reserves within the Central Banks began to shrink and capital fled from the country with haste. Finally, export revenues dropped and foreign investment shrunk to a minimum. Unfortunately, the citizens of Russia did not fare much better. The low prices hurt oil producers and thus, led to layoffs. Plus, the lower value of the ruble made worker’s wages worth much less.
Venezuela was already a powder keg before the current situation started. However, the country has spiraled out of control due to lower oil prices accompanied with rampant corruption among the country’s leading officials. Of course, the impact also hits closer to home for Americans. Those that happen to work for companies within the oil industry have likely been impacted in a negative manner. During the first half of the year, companies have experienced over $50 billion in defaults. Of those companies, 56% are energy companies. The default rate of exploration and production companies has increased to 29%.
Sufficient to say, Americans have been laid off more quickly than ever before. And, if the prices do not rise in the near future, more and more American companies may very well begin to layoff and even file for bankruptcy. For the everyday consumer, low prices of oil can seem like a good thing initially. Who does not like paying less than two dollars for a gallon of oil? Americans obviously do and this has increased tourism throughout the country. In April, United States travel increased by 2.6%. The low prices of oil have most certainly helped and have encouraged Americans to travel, while they can still afford to do so.
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Low oil prices can be good for consumers in the short term. However, over time, they will not only hurt companies, but also begin to take a toll on American workers. Be cautious of what you wish for, because low gas prices are not always a blessing.
Disclosure: I do not own any shares or any stocks mentioned in this article.
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