Monday 26 September 2016

Shouldn't everything be getting cheaper as oil prices dive further?

Published 24/01/2016 | 02:30

Shouldn't everything be getting cheaper as oil prices dive further?
Shouldn't everything be getting cheaper as oil prices dive further?

Oil prices fell to their lowest point in 13 years early last week.

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The price of a barrel of oil almost slipped to $27 a barrel, prompting predictions that it could sink to as low as $10 a barrel. This is a far cry from the rocketing oil prices of four years ago, when the price of a barrel of oil was around $110 a barrel.

Oil price falls are good news for consumers - if they're being passed on to them.

There is evidence of these record low oil prices being passed on to consumers in the forecourts - and when heating their home.

The price of a litre of petrol has fallen by about a fifth since January 2013 - from 154.9c to 126.5c today, says the AA.

The price of home heating oil has almost halved since January 2013, depending on the supplier. Campus Oil for example charged €452 for 500 litres of kerosene in January 2013 - today, it charges €238.

Most energy suppliers have also reduced the cost of their gas and electricity over the last year.

However, there are a raft of other things - aside from fuel - which should be getting cheaper if these low oil prices continue.

Airplane fares

Flights to long-haul destinations could get cheaper this year - if record low oil prices feed their way through to the cost of flights.

Although airlines buy their fuel in advance, oil prices have been low for more than a year now - so the savings should be making their way to consumers by now. Indeed air fares have fallen by about 7pc over the last year, according to the latest inflation figures. Fuel is one of the biggest expenses faced by the aviation industry - and airlines have used high oil prices in the past to justify fare increases. So air fares should be coming down even further as oil prices continue to dip. Of course, there is nothing to stop airlines from pocketing the savings themselves as they are in the business of making money after all.

Taxi and bus fares

The cost of getting a taxi or bus has ironically gone up over the last year - at a time when lower fuel costs should be reducing the cost of such transport.

"In theory, bus fares and taxi fares should be coming down as they have lower fuel costs," says Alan McQuaid, economist with Merrion Stockbrokers. "But theory is one thing - practice is another."

Jam, cereals and baby food

Low oil prices mean it should be cheaper to get goods into the shops - because of cheaper transportation. This should feed its way to your supermarket trolley - and lead to savings on your weekly shop.

Indeed, the price of many groceries that are imported into this country has fallen over the last year, such as tea, coffee, bread, crisps, pizza, baby food, jam, marmalade, and soft drinks. The price of some home-grown foods meanwhile has shot up - such as potatoes, beef, and flour.

"Most of what we import from Britain, such as magazines, cereals, jams and baby food should be getting cheaper - because moving goods has got cheaper," says Mr McQuaid.

"Sterling is strong against the euro however, so that does push up the price of imports from Britain - though sterling has started to weaken recently."

Cereals have become slightly more expensive over the last year - but bread is now cheaper.

Another reason that a lot of your groceries should be coming down in price is that oil is often used to produce goods - or is within the energy used to produce them.

Nappies, paint and toilet seats

Oil is one of the ingredients used to make a lot of DIY and toiletries so these too should be coming down in price.

Oil is often used to make house paint, toilet seats, roofing and water pipes. It can also be used to make golf balls, golf bags, and children's crayons. Many dishwasher tablets, washing powders, shaving creams and ice cube trays contain oil. Oil may even have been used in the artificial colouring in your toothpaste.

Nappies should be getting cheaper as they are made of petrolatum - another word for petroleum jelly. Petrolatum comes from petroleum, which is essentially oil. Cars should also be getting cheaper - because as well as being used to transport cars, oil is used to produce the steel and plastic used to build them.

Losers

Not everyone is better off financially when oil prices collapse - many investors were burned last week after the new record low oil prices sent stock markets into turmoil.

Sadly oil has no bearing on motor insurance or education costs - which have seen the worst of the price hikes here over the last year.

Sunday Indo Business

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