The Other Products Falling Oil Prices Are Making Cheaper
In the past six months, the price of oil has plunged more than half, from more than $100 a barrel to less than $50. That’s devastating for the Russian economy and energy companies, but it’s great news for anyone in the U.S. who needs to fill up a car with gas and keep a home warm in the frigid winter months.
Or, buy a whole lot of makeup.
Makeup. Yup, makeup. Makeup is one of a number of surprising products that are dependent upon the price of oil.
In the shipping and delivery industry, it’s common practice to levy a surcharge on consumers to compensate for the unpredictable cost of oil. The more expensive oil prices creep, the more consumers pay to have their packages delivered to their door. In the transportation industry, a fuel surcharge tends to be exceptionally transparent, broken down in a chart, published on the company’s website. People gripe when a fuel surcharge goes up, but they also know exactly why they are paying that fee and how much it is.
In most other industries, however, this idea of a surcharge just doesn’t exist. Consumers still bear the brunt of higher oil prices, but prices are adjusted more subtly. And when oil prices fall, there is less incentive for business owners to pass along savings. Instead, business owners opt to pad their pockets with profits, says Chris Christopher, the Director of Consumer Economics at information and data analytics company IHS.
When gas prices are high, retailers woo consumers with deals, like a coupon from the grocery store that will save you money for each gallon of gas you buy, says Christopher. But when gas prices crater, as they have in the past six months, businesses don’t tend to play the reverse of the same marketing card, namely luring people to their store with promises to pass along gas price savings to the customer. On the one hand, “lower pump prices mean they have more money to spend,” says Christopher.That’s because as long as you aren’t a Russian oil tycoon, falling oil prices mean fatter wallets and with more money in the pockets of consumers, and they will demand more goods and services. “If demand is increasing, that would push the price up.”
What this means is that in some industries, oil price surcharges are shaved off immediately. In other industries, falling oil prices will be incorporated indirectly and more slowly. Nonetheless, $46 a barrel for oil will pad consumer’s wallets in a surprisingly wide array of industries. Have a look:
Heating oil: The price of heating oil trends with the price of crude oil. Ergo, lower oil prices mean that it will be cheaper to keep your home warm, says Christopher of IHS.
Cosmetic and beauty products: A majority of makeup products are made from petroleum, which is a crude oil product, says Will McKitterick, a research analyst at IBISWorld, a business information and industry research firm. Lower oil costs will eventually lead to lower prices for makeup.
Plastic bottles: Plastic is a product of petrochemicals, which is a product of crude oil. Therefor, the less expensive crude oil becomes, the cheaper plastic bottles become, says McKitterick. Consumers buy soda and water in plastic bottles daily.
Paint: Petroleum goes into paint. The less expensive crude oil becomes, the less expensive paint becomes, says McKitterick. No more excuses to renovate your living room!
Delivery services: Grocery-delivery company Fresh Direct dropped its fuel surcharge when the average price of gasoline fell below $3.01 per gallon. Shipping giants FedEx and UPS calculate surcharges as a percentage of the total cost of a package, depending on the price of diesel and jet fuel for freight and air shipments, respectively.
Soap: Cleaning products are made from a product of oil called petrochemical feedstock. When oil prices fall, so to will the price of soap, says McKitterick.
Coffee: If you are buying coffee in the U.S., then a large portion of what you are paying for is transportation costs. Because coffee beans largely are grown outside of the U.S., you are either are paying for coffee beans to be transported to the U.S to be roasted or you are paying for roasted beans to be transported to the U.S. Either way, lower oil prices mean lower coffee prices in the U.S., says McKitterick.
Airline tickets: The price of an airplane ticket is largely dependent on the price of jet fuel, which is directly related to the price of crude oil. The prices of most airline tickets are a combination of the ticket price plus a fuel surcharge. The fuel surcharge varies depending on the airline and surcharges are rarely, if ever, broken down transparently by airlines. Also, each individual airline structures ticket prices independently so prices vary by carrier.
As an industry, though, the price of airline tickets before taxes and surcharges is expected to fall 5.1 percent in 2015 thanks to plummeting fuel costs, according to the International Air Transport Association. Most airlines have hedged their fuel contracts as many as 12 months in advance, so oil price declines take some time to be reflected in airline ticket prices, according to Brian Pearce, the chief economist for the IATA.
Pesticides: Manufacturing pesticides takes a lot of energy. Cheaper oil prices will eventually mean cheaper pesticide costs, says McKitterick.
Home appliances: Your refrigerator, iron, microwave, toaster, washing machine and clothes dryer are very likely made with a number of plastic parts. Plastics are petroleum based and petroleum is a product of crude oil. Therefor, eventually, the price of common household appliances should trend lower on the back of falling oil prices, says McKitterick.