Plunging Oil Prices May Revive Australian Finance Industry
Oil prices have seen a major tumble, shocking the financial world and causing stock markets to plunge downwards. Crude oil barrel prices have fallen over 70 percent since June 2014, resulting in one of the biggest downturns ever faced by the industry.
And while the Australian economy has taken a tough beating in recent times thanks to slow down of mining, does this spell complete disaster? Or could the falling oil prices bring a ray of hope to the Australian financial industry?
It may come as a surprise to most that although the Australian economy is highly dependent on commodities export, the country is also a net importer of crude oil. This gives it the opportunity to benefit from the lowest crude oil prices in years. The oil price crash may in fact be a silver lining for the financial industry in Australia, which has not been performing well over the last few years.
Most day-to-day expenses are directly or indirectly related to oil price. Lower oil prices means that the cost of transportation becomes cheaper, translating into lower prices of many goods. Lower oil prices also help to reduce energy and fuel bills. This means that people from all income groups will have accessible to more disposable income because these costs eat up large chunk of their earnings.
With larger disposal income, people will be able to channel their added funds into buying homes and investment properties. This is a boon for the home loan division of financial institutions. People also have better buyng capacities, so they will use their credit or debit cards to make in-store and online payments. Financial institutuons handling card payments will continue to earn income via fees. Falling oil prices will also likely reduce inflation. This will enhance the potential for further growth to the industry through rate cuts.
Oil prices have drastically fallen and are now at their lowest levels over the last two decades. Most economists have already predicted that low oil prices are here to stay, which means that the world economy is on the threshold of substantial changes. Industries doing well before may not do well in the future and vice versa. Individual investors, institutions, super funds, managed funds and self-managed super funds will need to re-align their investment portfolios. Good financial advice and wealth management services from banks will likely be in high demand. Investment banks will benefit from brokerage fees because of an increase in investment product trading. A budding financial industry means more service sector jobs for residents.
There are other less significant benefits to the financial industry in Australia. For instance, cheaper air tickets will enhance international travel. This creates a demand for travel insurance and foreign exhchange. Cheap fuel may also propel the demand for new cars, which can potentially revive the sluggish Australian auto and auto loan industry. Manufacturing and mining industries that depend on oil as a raw material for production will benefit from lower running costs.
While these benefits may be offset by the investments of financial institutions into oil and energy stocks, the overall outlook looks positive for the Australian financial industry.