Oil Price Slump: The Big Winners

The oil market is currently in disarray because of falling demand and increasing supply and because of this, our winners might continue to win well into 2020.

Following OPEC's recent decision to pump more oil into the economy and the implication that oil might still be far from rock bottom, it's about time we focus on the winners. The primary winners are those in industries that comprise the biggest consumers of oil and that includes all types of transportation companies: ground, air and water. Since companies in the business of transportation typically buy oil using futures contracts, they must have lost out during the last quarter of 2014 as oil prices began to fall. Following predictions of continuous expected slump however, they will be seen to gain big as the oil supply market worsens. Considering that oil and gas makes up the most part of their cost base, this means less cost of running business and more profit for them, part of which we can expect to be passed down to customers in the form of lower ticket prices. Of all the transport business players, road transportation appears to be the biggest consumer of oil and we can therefore expect to see an increase in travel as ticket prices start to drop. This could also mean a win for the usual tourist destinations and tourist companies specifically.

The average consumer is another big winner as oil prices continue to fall. Consumers will get to spend less to fuel their vehicles and power their generators (in less developed countries), which of course translates into higher disposable income that can be allocated to other consumer discretionary products. With lower travelling cost and higher disposable income, it is possible that airports will be a little more crowded this holiday season although the effect of price movements usually take time to materialize and also to show up in data.

The Agricultural sector is one of the world's largest users of oil as that is one of the components of fertilizer. They can also be expected to benefit at this period as their cost base is reduced drastically. Furthermore large manufacturers can be expected to have started stocking up on oil as it is right now to take advantage of historically low prices. This includes both manufacturing companies and governments of manufacturing economies around the world. This sort of accumulation is much easier for governments who would typically have greater ability to store oil.

Since lower oil prices will influence the price of fuel, we can expect food transporters to gain, and expect the lower transportation cost of food to lead to lower food prices as time goes by. The price tag of food in more structured markets will take time to adjust but the immediate effect of lower food transportation cost will be felt instantly in less structured markets.

Lower transportation cost also applies to other goods that have to be transported both internationally and domestically. However, because prices are usually sticky particularly for non-consumer goods, we can expect these prices to hang at their current level for the time being and start to fall over time. The price of oil is expected to be low for a while longer so maybe, just maybe discretionary products will reap the benefits of the price slump.

The oil market is currently in disarray because of falling demand and increasing supply and because of this, our winners might continue to win well into 2020.