Whose Profit Increases When Crude Oil Prices Increase?

 

Rising oil prices are a modern phenomenon that is witnessed globally. There are nations around the globe that are reeling under the increased cost of crude oil and are looking for ways to finance their growing power needs. 

A rise in crude oil prices has a profound impact on any nation's economy. Businesses constantly look for ways to curtail the high cost by offsetting fuel-intensive activities or by driving the cost of services higher. The airline industry is a prime example of this effect.

Other businesses too have different reactions but there are a few sectors that benefit immensely from this rise in crude oil prices. When oil prices march up, there are numerous sectors which thrive. 

High oil fuel prices have varying effects on different sectors; manufacturers are looking for ways to produce more of the commodity and benefit from those higher prices. 

For oil, instead, that means opportunities for companies involved in exploration (for example, seismic survey), drilling, manufacturing, and service. Boom times in the energy sector inevitably flow into the economy. When oil prices are high, companies spend more on equipment, supplies, wages and money which enter the economy in much the same way as any other sector boom.

For businesses and sectors looking to supplant oil, cheap oil is troublesome. While most people would accept that consuming and using oil is correlated with uncertain and nebulous costs, the USA has been reluctant to turn those costs into higher taxes on fuels. 

What's more, it's not clear whether higher fossil fuel taxes in Europe and most of Asia are really doing anything to reduce environmental harm beyond consumption reduction. All in all, however, when oil prices are low, it is very difficult for renewable energy technology to compete on price effectively.

With high oil prices, people drive less and stay closer to home for shopping, combining different tasks to make the drive more effective. They will also spend less on oil-derived goods, whose prices are increasing with higher oil prices.

 There will inevitably be some loss. Although simple alternatives are available, people will actually have to spend more on energy and spend less on other items.   

However, over time, more and more solutions are becoming available, and greater behavioural improvements are likely. Over time, people can drive less, take better care of their vehicles to improve mileage and turn to vehicle models that are more fuel-efficient and use more public transport.

There are genuinely few short-term alternatives to oil in the United States. The technology exists to supplant oil with natural gas in many applications, but in the face of persistently higher oil prices, such switchovers only make economic sense. 

Similarly, coal and biomaterials (switchgrass, etc.) may be pressed into operation, but again only make sense as alternatives if the oil prices are very high and are likely to stay there.

In the end, higher oil prices won't get most people to start celebrating. If nothing else, going by those gas stations every day and watching the prices tick higher is definitely having a psychological impact. That being said, free markets give business agents plenty of options to respond to rising prices and oil prices are no exception. 

Although painful in the short term, higher prices will potentially open the door to safer, more efficient and eventually cheaper sources of energy that will help us all for years down the way.