The Surprising Effect of Lowering Oil Prices
As the United States produces oil from new sources via fracking and horizontal drilling, global oil prices are nearing six-year lows. Drivers and airlines are obviously benefiting from the price drop, but one of the biggest beneficiaries is less obvious. Producers of plastic packaging are situated in a great position to prosper from this change.
Because plastics are derivatives of crude oil polymers, 5% of the world’s oil is used to manufacture them. Lower oil prices will reduce transportation costs in the plastic industry, as well as boosting the manufacture of plastic resins such as polypropylene and polyethylene. Plastic resins are sensitive to price fluctuations in crude oil, natural gas, and other production materials.
Lower oil prices have an effect on the plastic packaging industry beyond lowering production costs. Gasoline in the United States is at its lowest price since April 2009. According to the US Energy Information Administration (EIA), Americans will spend an estimated $550 less on gasoline during 2015 than they did in 2014. The EIA expects that oil prices will continue to fall through May 2015, then rise slightly for the end of the year. The lowered cost of gas combined with an increase in employment rates means that consumers have more expendable income than in the recent past.
An increase in customer spending has led to an increased demand for plastic packaging. Because demand is so high, plastics companies are reluctant to lower prices. Keeping packaging prices consistent will increase margin expansion for the manufacturers. By keeping packaging pricing consistent as production costs drop, plastics companies can expect to see increased revenue in the coming year.
Between increased employment rates and decreasing oil costs, it appears that 2015 will be a profitable year for packagers, product manufacturers, and consumers alike.
