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How does the price of oil affect other industries?

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Quick Answer

Oil prices obviously have an effect on alternative energy companies, as a lower cost of oil results in less money and incentive to develop less carbon intensive fuels. Fuel companies themselves spend less money on technology and research of future oil fields when fuel is cheap.

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Full Answer

When gas prices drop, more Americans buy automotives, as they have more money to spend and the cost of operating an automotive is less. The car industry improves as the cost of gasoline drops. Energy-intensive industries such as farming receive an even greater benefit from drops in oil prices; farm output requires four to five times the amount of energy required of the manufacturing industry. Thus, a drop in oil prices also causes a significant drop in the cost of food goods.

The airline industry is affected by fluctuations in oil prices. Drops in fuel cost allow for lower flight costs, but these drops in flight costs are delayed because airlines buy oil far in advance. When oil prices drop, the stock market does better due to increased consumer spending. Manufacturing of drilling and other oil-related equipment is reduced during times of cheap oil. State economies are affected by dropping oil prices depending on whether they are an oil-producing region or not. States that consume more oil than they produce experience an economic upturn.

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