For the last few years, we are seeing a decrease in the oil price across the globe. The price of crude oil that was $129 a barrel has now fallen down to less than $50.00. This is a quite a fall and it has affected the economies of many developing and developed countries. However, there are very few countries whose economy has not been affected by this reduction. Any rise or fall in the price of fuel has a huge impact on the heavy equipment and construction industry and as per the current scenario where the prices have dipped sharply it has left a huge impact on the construction sector. If we assume that the cost of construction will fall with the fall in the oil price, it may not always be the case. On the contrary we also see an increase in the price of finished products. However, the chances are more for the price to go down.
Fuel price plays a significant role in lowering the price of transporting raw materials and other items that are necessary for the construction business. Also the fuel required in heavy equipment will cost the company less which means that the company can now utilize the funds for some other purpose or can just keep it as reserves so that whenever it needs to take any strong financial decision, it can do so and utilize the reserves. Even the industries that are associated with the construction sector benefits a lot when the fuel price is down.
Market experts are of the opinion that the fuel prices that are currently at its bottom will soon pick up and then the picture of the construction industry will differ from what it is for the time being. As of now, it is hurting the oil and gas exploration and production companies but is benefitting the rest but as soon as it starts to increase, they will start benefitting and the construction sector might have to face the heat. Countries that import oil while the prices are down experiences good profits but as soon as the price goes up, they feel the pinch. They then have to import oil at higher price. As a result of this, the construction sector at that time takes a hit. They can’t afford to sell the end product at a lesser price.
Countries like Saudi Arabia, Kuwait and other Gulf countries that extracts oil and are also the major exporter do not experience any crunch when the prices are high. They in fact find it to be convenient to them. They can sell the fuel at an increased price to the rest of the world. The construction industry in these countries also makes good deal of profit as the fuel prices are mostly less. In case it incurs any loss, it has to do with factors other than the fuel price. Low fuel price has come as a boon to many small construction companies who have just started their business few years ago. They are now able to spend less on fuel and can utilize the money to attain business accomplishments.