Newspapers have been full of the news that the price of oil is dropping. Over the last few months, oil prices have dropped by as much as half. The price change has an impact on us all, globally, but what does it mean specifically for those of us in the UK?
When the price of petrol and diesel drops it has a beneficial effect on consumers. Petrol has been expensive for over a decade and the high prices have a double whammy effect for consumers; as motorists you pay more for petrol and diesel but it also increases the cost of goods that use petrol for plastic as well as companies trying to recoup higher logistics costs. Oil is also closely connected to the price we pay for home utilities like electricity and gas. High oil prices mean we are spending more and more to cover the costs.
Political leaders have been challenging for that drop in oil prices to be passed onto the consumer. The Chancellor George Osborne has capped charges for motorists over the past few years but consumers are now rapidly seeing petrol prices falling. Ed Miliband has also campaigned for utility fuel bills to be capped to protect consumers from fluctuating oil prices. There is continuing pressure on airlines to pass on savings and some energy companies including British Gas have already announced price drops for customers.
The drop in prices will ease the burden on consumers. Many may have ditched the car in favour of public transport and with cheaper petrol they might be more inclined to get behind the wheel, which is good news for their flexibility and wealth indices but possibly not as good for the environment.
It’s likely that those industries that have been affected by rising fuel prices, like the agricultural and farming industry, transport and logistics, mining, wholesale and retail could reap the benefits of a drop in oil prices that will affect their running costs. Growth could be an outcome from their global reductions in oil prices.
However the drop in oil prices isn’t all good news for the UK economy. The negative impacts could be a major concern, especially as they relate to companies like BP. The multinational has already announced it is cutting around 200 jobs from its North Sea operation as rigs are not as in demand as they were. BP is a major London listed company with a strong dominance in Sunbury and West London. BP like many other major corporates maybe impacted not only financially but also have consequences in their supply line to other industries and organisations.
On the face of it the drop in oil prices is good for consumers. But in our globally connected world we know that a rise in revenues in one corner can mean a drop in another which can affect many different businesses and industries along the supply chain. While it’s good for consumers there may be other businesses that suffer, damaging the economy overall.