The price of a crude oil barrel (WTI) reached its 2024 highs in March when the barrel traded for around $88. Since then, oil prices have been trending lower despite geopolitical concerns as elevated inflation and interest rates have dampened the investor sentiment toward economic growth for the next two years. The WTI crude oil barrel currently trades at around $81. Concerns over an oil surplus have also created downward pressure on oil prices. According to Kedia Advisory, oil production has been ramped up in the last few quarters in anticipation of higher demand, which is yet to materialize. If oil goes into a surplus, further price declines are likely in the coming months. WTI crude oil has come a long way from the highs of close to $120 seen in 2022 due to these reasons.

Half a World Away

China’s economic growth slowdown has also played a key role in dampening the demand for crude oil. China, which consumes more than 12.7 million barrels of oil per day, is the second largest oil consumer in the world behind the United States. The country accounts for approximately 13% of global oil consumption. Any slowdown in the Chinese economy, therefore, will have a direct impact on oil demand.

In the second quarter, the Chinese economy grew at an annualized pace of 4.7%, the slowest pace since early 2023. Analysts were expecting China’s GDP to grow 5.1% in Q2. Amid this deceleration in growth, crude oil imports by China fell 2.3% in the first half of this year.

What Investors Need To Know

Falling crude oil prices will result in lower gas prices at the pump, and these savings are likely to boost the disposable income of Americans in the coming months. However, investors need to be wary of a potential rate cut in September leading to an increase in oil prices as economic growth is likely to accelerate in a low-interest-rate environment.

A meaningful decline in oil prices will not only help consumers but also boost the profit margins of several types of companies.

Airline companies will be big winners of falling oil prices as jet fuel costs account for the bulk of the operating expenditure of airline companies. For example, approximately 20% of Delta Air Line’s (DAL) annual operating expenses consist of jet fuel costs. Shipping companies such as FedEx Corporation (FDX) and United Parcel Service (UPS) are also poised to benefit from low oil prices as these companies spend substantial amounts on gas every quarter. Although there is no direct relationship, automakers with a line-up of less fuel-efficient vehicles such as Ford Motor Company (F) may also benefit from low energy prices as the demand for these types of expensive vehicles is likely to trend higher when gas prices fall.

Both Dilantha DeSilva and Stocks.News have positions in Ford.