What are the Global Effects of Low Oil Prices?

Over the past year oil prices have plummeted (as discussed in: Why Are Oil Prices Dropping?), with countries across the globe feeling the effects of the market crash. While in July 2014 oil was traded at over US$100 a barrel, today’s market has seen prices drop to just $46.23. So what are the consequences of this global price drop? Let’s take a look… 

Cheaper petrol

One of the most resounding effects of plummeting oil prices has been a drop in the cost of petrol. In December 2014 the RAC Foundation revealed that British motorists spent £2.57bn on fuel, a huge £330m less than figures from July when oil cost over 50% more per barrel.

Higher insurance premiums

While filling up the tank may be cheaper experts maintain that it encourages motorists to use their cars more and rack up more miles. This translates into more on-road accidents and ultimately, higher insurance premiums. Research from the British Society of Motor Manufacturers and Traders backs this claim, its figures reporting that in the last quarter of 2014 UK motorists drove 2.2% more miles than the previous year.

An increase in on-road vehicles

Insurance premiums may be rising but that hasn’t stopped an influx of new vehicles hitting the roads. Last year saw new vehicle registrations hit the highest levels in over a decade, with the SMMT reporting 2.5 million new sets of registered wheels in 2014.

Russian tourists staying at home

While Russian tourists used to be considered as major money trees the drop in oil prices has seriously impacted their wallets. John Kester, trend researcher at the United Nations World Tourism Organisation explains, “Economic growth might be dented in countries which are oil exporters. The Russias and the Nigerias of the world might see fewer people travelling.”

Airline profits set to soar

For years the aviation industry has been battling plummeting profits yet Dr George Filis, associate professor in financial economics at Bournemouth University maintains that falling oil prices are a “golden opportunity” for aviation companies to reverse the trend. Advance fuel contracts will help to secure long-term low prices which should be passed on to passengers.

Long haul holidays for Brits

Russia may be suffering however the economic boost of falling oil prices has left Brits with more disposable income to spend on travel to exotic destinations. Rather than settle for cheaper short-haul flights the nation will be more inclined to snap up a cheap deal to a far-flung destination. A study from the International Air Transport Association confirmed this trend and predicted that in 2015 the average return fare would drop by 5.1%.

Safe sex for all

As unlikely as it sounds falling oil prices are set to cut the manufacturing costs of synthetic condoms made from polyurethane. Petrochemical- based products lubricants could also fall.

Islamic State terrorism gains momentum

As Nigeria’s oil income drops it will negatively impact its ability to fight Boko Haram and the Islamic extremists. This will also be seen in countries such as Sudan, Libya and the Sahel region.

These are just some of the global consequences of drastically dropping oil prices. Whether or not they are heightened or alleviated over the next few months will depend entirely on how the market, companies and consumers react to the phenomenon.