But Cheap Energy Can Be Costly for Some U.S. Firms
heads back up. There’s another aspect of lower gas prices that affects Detroit, however: Motorists who drive more because gas prices are lower also tend to wear out their rides faster. That’s good news if you sell automotive parts for a living.
EXPRESS SHIPPING Express delivery services like UPS and FedEx will save
gobs of money, both in jet fuel and when they gas up their delivery vans to deliver items to your doorstep. To remain competitive, express-shipping services are pretty good about passing cost savings onto consumers, although they also hedge their fuel costs. And given the booming phe- nomenon of online shopping, shipping costs are increas- ingly important.
FREIGHT TRUCKING Declining freight costs tend to put downward pressure
on consumer prices across the board. It’s true that many other factors affect supply and demand, but the trend line is clear: Lower freight costs tend to be a boon for consum- ers. “Small, high-value commodities generally are shipped by air,” observes Edwards. “The heavier items go by freight rail and by highway. But they all benefit.”
GROCERIES Farming is a surprisingly energy-intensive business.
There are tractors to fire up, combines to fuel, and fertil- izers to distribute. So the price of oil can have a big impact on the price of produce. Farmers’ energy costs are dropping. But there’s a wild
card: It’s not clear yet how reduced gas prices will affect the market for ethanol. Because ethanol is derived from corn, disruptions in the ethanol market could have a major impact on farmers in states like Iowa, Illinois, and Nebras- ka. It’s important to note that many other factors affect grocery prices. Recent droughts in Texas and California, for example, have reduced cattle herds. This has kept the price of dairy and beef surprisingly high.
RETAIL SPENDING Whether lower oil prices will result in lower retail prices
generally is difficult to predict. Strong demand may keep prices firmer than would otherwise be expected. But it’s important to remember that according to economists, consumer spending accounts for about 70 percent of U.S. economic activity. As San Diego investment adviser Bill Gunderson recent-
ly wrote on MarketWatch: “The U.S. economy is greatly dependent on the U.S. consumer. A healthy consumer translates into healthy economic growth.”
MARCH 2015 | NEWSMAX 17 P
lummeting oil prices are good for the U.S. economy, but there will be losers as well as winners. Especially hard
hit: The energy hotbeds of Texas, Alaska, and North Dakota. Oklahoma and Pennsylvania will feel the effects as well. Other business sectors expected to feel the pain: Oil Exploration Companies. Firms that provide drilling
services and equipment will probably be hardest hit. Until oil climbs back above $65 a barrel, the incentive to search for oil in remote, hard-to-reach locations will be minimal. Baker Hughes Inc., for example, announced that 35 of the massive, horizontal rigs used to reach oil in tight rock formations were idled in a single week — the biggest one-week drop in six years. Shares of another exploration company, Transocean, crashed by over 65 percent. Alternative Energy Firms. Solar firms will take a hit, along with hybrids and electric-powered vehicles. Tesla’s stock, for example, was having a good year until the fall nosedive in oil prices. According to CATO economist Chris Edwards, lower fuel prices “clearly undermine” the electric car market. “If the price of oil stays down for an extended period of time,” he adds, “we’re going to need even bigger breakthroughs in battery technology for electric cars to make any sense.” Banks. They were counting on huge loans to energy
companies to expand their oil exploration and development. Now, with lower oil prices changing the economic calculus on investment, demand for those loans is starting to dry up. Look out for cutbacks in energy development to begin impacting bank balance sheets later this year. Steel Manufacturers. In recent years, steelmakers could
count on orders for thousands of tons of metal pipe and tubing used in fracking. Analysts worry that demand may soften in 2015. U.S. Steel Corp. recently announced it would idle plants in Ohio and Texas, ahead of reduced demand. Railroads. Reduced fuel prices will help their bottom
line, right? Think again. The railroads were doing a booming business transporting exploration equipment and cargo to and from the oil patch. Already, as exploration levels off a lot of that business is tailing off. Real Estate. The impact here will be regional. There will be much more vacant ofice space in Texas this year, as energy firms pare down their expansion plans. – D.P.
IDLE RIGS Oil exploration could see a drop.
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