Oil prices are ushering in February much like they started the new year — on the downside. Prices mid-day Monday were down nearly 6 percent.
Through the end of January, the price of WTI crude oil has fallen almost 12 percent this year, meaning that a barrel of oil costs about 40 percent less than it did a year ago.
While cheap oil is sending global stock markets into turmoil, the average American is reaping some benefits. Here are five ways consumers are benefiting from the drop in oil prices worldwide.
Let’s start with the most obvious. Prices at the pump haven’t been this low in seven years. The average price of gasoline was $1.856 per gallon this week, down more than 9 percent since the same time last year and the lowest level since January 2009, when prices were $1.847 per gallon.
The decline in gas prices lags the year-over-year drop in oil prices, however. That’s mostly because the price of gas hinges on more than just the price of crude, says Tom Kloza, co-founder of Oil Price Information Service. Gas prices also include the costs for distribution and marketing, taxes and refining. Gas stations typically get a thin margin on gas, Kloza says, so they won’t immediately lower prices when oil falls if drivers continue to fill up.
“Why should someone immediately pass along 20-cent-per-gallon in wholesale decreases when the price is dictated by extra supply and not by diminished demand?” says Kloza, who expects pump prices to drop below $1.80 this winter before bouncing back in the spring and summer when more people drive.
2. Home heating
Maintaining a cozy home this winter is easier and cheaper, given the above-normal winter temperatures and lower heating costs.
The average price of No. 2 heating oil in the U.S. is $2.064 per gallon, 26.7 percent lower than it was a year ago. Similarly, the price of propane — which can be produced from crude oil — is cheaper than it was a year ago. This week, it averaged $2.024 per gallon versus $2.376 in January 2015.
On top of that, this winter has been 15 percent to 20 percent warmer than previous years in much of the country, says John Huber, president of National Oilheat Research Alliance. For some homeowners, that translates into savings between $1,500 and $1,600 this winter.
Huber said those heating customers who locked in at higher prices last year may still see some of the decline in heating prices: Most contracts now allow prices to come down — to a point — when prices drop, so homeowners can enjoy the savings and heating companies can keep happy customers.
3. Airfares and in-flight amenities
Flights are becoming more affordable — though, again, not quite in line with the plunge in oil prices. Airline research firm Hopper predicts that average round-trip fares will hit a three-year low of $210 this January, 14.2 percent lower than a year ago. International fares fell by 15 percent year over year, according to the government.
Still, that pales in comparison to the savings that airlines are collecting from lower fuel costs. Delta Air Lines experienced a 44 percent decrease in fuel expenses in 2015 over 2014, while United Airlines reported a 36 percent decline and Southwest a 25.2 percent drop. That translated to billions of dollars in profits last year for most carriers.
Some of that money is going to provide more ancillary benefits for passengers. Delta, United and Southwest have announced plans to buy newer planes with larger overhead bins, improved audio-video equipment on seat-backs or wireless Internet.
United also plans to bring back free snacks for passengers in the economy section starting in February. It has said it will also introduce an “entry-level fare” in the second half of the year. Three months ago, American Airlines announced a similar low-cost fare for this year.
The U.S. Postal Service, FedEx and UPS may have all just raised rates, but at least shippers will pay smaller fuel surcharges when sending packages starting next month.
From Feb. 1 through March 6, FedEx’s ground fuel surcharge will fall to 3.75 percent from 4 percent. The company’s express surcharge also will drop to 0.75 percent from 2.25 percent. Similarly, UPS is reducing its ground fuel surcharge to 5 percent from 5.25 percent and its air and international surcharge to 3 percent from 4.25 percent.
The two shipping giants use indices to set surcharges, but those indices lag current fuel prices by two months. For example, FedEx’s fuel surcharge for February is based on the December 2015 average spot price of fuel. UPS adjusts its surcharge monthly based on changes in the national U.S. average on-highway diesel fuel price from the Energy Information Administration.
Food prices are rising overall, but they’ve been climbing at rates below the historical average. The U.S. Department of Agriculture reported that prices for food at home increased 1.2 percent, less than half the 20-year average of 2.5 percent. Prices for pork, fish/seafood, dairy products, fats and oils and fresh fruits all experienced a decline in 2015 versus the year before.
Part of the reason can be pinned on oil prices, since trucks use gasoline to get food to supermarket shelves. The effect is slight, though, says Kristin Kiesel, professor of agricultural and resource economics at the University of California in Davis.
Only a small percentage of the final price of food in grocery stores is linked to energy and shipping costs. The price is also made up of labor costs, processing and packaging, plus a mark-up for any branded products reflecting marketing spending, she says. The impact from fuel prices also would be more noticeable on fresh food prices rather than processed ones.
“For instance, compared to grocery prices in general, a $1 increase or decrease in fuel prices might result in a 10-cent increase or decrease in food prices,” she says. Prices of produce might see a more pronounced swing of 20 cents on average.