What the Tanking Oil Price Means For You

The oil price is getting smashed and nobody knows how low it will go.

While that’s bad news for Aussie oil producers like Santos (STO), which has seen its share fall around 50% since August last year, the question remains… Why should you care?

For a few of reasons, actually, all of which are way more interesting than the oil price chart below.

oil price

Image: Nasdaq

Cheaper petrol… Obviously

Petrol is made from oil, so the free falling oil price has made a tank of fuel cheaper. This is obviously great news for your weary wallet, where petty prices are already ducking below $1, but it goes much further than that.

The knock on effect of cheap oil is like a tax cut for everyone with wheels.

As you know if you look over your back fence, Australia is a massive bit of earth. So to get all our stuff around each day, like groceries or your latest eBay purchase, we use trucks like nobody’s business. The implication being that anything heavily transported around the country should become cheaper.

Lower interest rates (maybe)

As oil is used in just about everything, from your Mount Franklin water bottle to your Mount Gay rum production line, the falling price ought to flow through to reduce prices of a wide range of products. This is called deflation and is bad news for the economy.

Why? Well, when prices are falling, people spend less in anticipation of being able to buy more with their money later. This, and the fact businesses are receiving less for their products, means there’s less money going around, when we really need more money going around to grow the economy.

To counter that, the big-wigs at the Reserve Bank might cut interest rates to encourage people to borrow (because money is cheaper to borrow), spend (because interest rates are so low it’s not worth holding cash) and invest (because you’ll earn a better rate on your money by putting it into property and businesses) more.

These things boost the economy. And if you’re in the market for a loan, the possibility of lower interest rates mean oil’s in your corner.

Cheaper flights

It takes a lot of jet fuel to fly a plane. Again, that’s made from oil.

So as airlines pay less for their fuel, they should pass (some of) this saving onto consumers by way of cheaper flights. Virgin has already scrapped the fuel surcharge it sticks you for on trans-Atlantic flights, and the pressure is now on Qantas and Emirates to do the same.

Great news.

So next time you hear a guy in glasses rattle on about oil, listen up with interest, cos it’s gonna grease your wallet three ways.

Image: olle svensson, via Flickr