Oil prices have
quickly fallen as of October 2014 to 44 month lows. As
seen in the chart below, which illustrates the average prices
for the past four years, 2014 gas prices have significantly
dropped.
Tax Impact
The most direct
impact is the collection of federal highway and state taxes at
the retail gasoline pump. The federal highway use tax,
applicable to highway motor vehicles with a gross weight of
55,000 pounds or more, is 18.3 cents per gallon and 24.4 cents
per gallon for diesel fuel. Federal gasoline taxes are
used as the primary funding mechanism for highway infrastructure
projects and this funding had been declining from steadily
decreasing gasoline purchases. In the face of the country’s
crumbling large infrastructure, this method of funding highways
was already viewed as inadequate. Lower fuel prices and
increased near term, vehicle-related fuel consumption should
somewhat help the highway trust fund. However, in the long
run the consensus is that the highway use tax is inadequate for
America's needs and should be given thought as to alternative
funding methods.
Consumers
For many
consumers, a major reduction of prices at the pump is
economically equivalent to a tax refund and should stimulate
consumer spending particularly at the retail level.
Trucking and Logistics
Fuel prices are a
major cost for trucking and logistics companies and this is a
welcomed cost reduction, particularly during the year-end
holiday period which is the busiest time of the year.
Air Travel and Hospitality
After labor
costs, fuel costs are this industry’s biggest variable
cost. Virtually all of the major carriers are now
operating post bankruptcy and have controlled many of their
other costs. Hopefully these important cost containments will
help the industry better weather a more challenging global
economic environment.
Chemicals and Plastics
Oil is major raw
material for products in these industries. Companies in
these industries have already been enjoying a U.S. economic
resurgence and competitive advantage from lower fuel costs in
the U.S. Further oil price declines should help
maintain this competitive cost advantage.
Electric Vehicles
Lower gasoline
prices will mostly slow the introduction of electric vehicles
(EVs). However, EV technology, including the number of
charging stations, is steadily improving and the industry should
be better positioned when the inevitable oil price cycle changes
and reverts to higher prices.
A major swing in a core
commodity’s pricing creates winners and losers. In the
short run, a major decline in fuel prices should benefit most
Americans.
