The global price of oil has been experiencing a sharp decrease for the past few months, thanks largely to the increasing supply in the U.S. and a cut in the price of the oil Saudi Arabia exports. Small drillers are concerned, as The Wall Street Journal reported: these companies are at the end of the chain of a product that is losing its value.
Small distributors, however, could benefit from a boom in oil consumption. And Brooklyn harbors a lot of small oil companies, which are likely to make the most out of this change of price.
Dull demand has driven the cost of crude oil to decline from $115 a barrel in June to $82 a barrel in early November. When it comes to residential heating oil, the price has dived to its lowest point since January 2011. Although the pricing trend seemed to be going up for the past three years, it has plunged during the past few months, from $4.24 in February to $3.42 a gallon on November 10, according to the U.S. Energy Information Administration.
Such a drop in the cost of heating oil has not been seen since 2008, when the price fell from $3.66 a gallon to $2.33 a gallon in a little more than two months. But the reason for that fall was different. At the time, demand for oil was shrinking; today, the decrease of oil prices is due to a “combination of factors,” according to William Latham III, Director of the Center for Applied Business and Economic Research. Among these factors, is the increase in oil supply and in the availability of natural gas, “which is a substitute for oil,” Latham said.
For Brooklyn small oil deliverers, this trend appears to be good news.
Eric Hernandez manages his own heating oil company, Advanced Fuel, a small business based on Atlantic Avenue. Advanced Fuel runs for six months a year and has only one part-time employee besides Hernandez. “I am selling more fuel. Because the consumer can afford it more, it has helped my company doing a little better,” he said.
With a possible cold winter coming up, demand for heating oil has been increasing, partly thanks to the decline in its price, Hernandez said. That is not the only reason why Hernandez’s business is in good shape, however. It also benefits from people’s perception about the future of oil prices, he said. The price of oil “has usually been high,” he said. “Customers or certain companies—they are taking advantage that it’s low, so they’re trying to buy it at a lower rate because they are worried that it might skyrocket again.”
For small gas stations, the picture is not as bright. “It hasn’t impacted us at all,” said Antony Mason, who has worked for 20 years in a Bushwick gas station that is now a Shell franchise. There are a lot of stations like his in Bushwick, and he said that this is a factor that Shell, from which he is forced to buy the gas he sells, doesn’t take into consideration. The price in Bushwick “tends to be a little bit cheaper because there is a lot of competition,” he said, so “your profit gets cut.” Yet, Shell sells to him at “the same price as the guy who has no competition.”
For Mason, the situation has been tough since the 2007 financial crisis. Since then, business has never been the same, he said. He is even considering getting rid of the enterprise. “If you could get rid of it, you would get rid of it tomorrow,” he said, adding that he would rather focus on car repair.
Mason is also facing a competition from alternative energies. “They’re building a lot of hybrid and a lot of electric vehicles,” he said, “and they’re building even fuel vehicles that are driving a lot more miles” per gallon than they used to, Mason said.
Yet, alternative and renewable energies are likely to go through a hard time because of the recent changes in oil prices, said Latham, of the Center for Applied Business and Economic Research. “In fact, the drop in the price of oil and the drop in the price of natural gas have made renewables economically vulnerable,” he said, because with the price of oil down, “the relative cost of renewables seems to be higher.”
For Latham, small oil businesses are likely to be the winners of this price decrease, even in the long run. “If the price of gas is declining over a medium term,” he said, then people will “go ahead and decide to purchase vehicles that consume more gas, and that means that in the long run more gasoline is going to be sold,” he said.
If he is right, small oil businesses have reasons to be optimistic. If projections are right, 2014 will be the year for which the average price of crude oil will have been the lowest since 2010.
Leave a Reply