The Effect of Oil Prices on the Cost of Your Holiday Meals


| 12/9/2015 2:15:00 PM


Tags: Oil, Food Prices, Crude Oil, Economics, Holidays, Food, Kayla Matthews,

The price of oil plummeted 6 percent on Monday, after the Organization of Petroleum Exporting Countries (OPEC) — a group of the largest oil-producing nations — made a policy decision last week to maintain its current oil production rates. OPEC now produces about 31.5 barrels of oil per day, which is above the organization's 30-million-barrel ceiling for oil output.

Current oil prices stand at $39.97 for crude oil, $2.19 for natural gas, $1.27 for gasoline, and $1.34 for heating oil at the time of this writing. These prices represent a low not seen since 2009. So what does this mean for the cost of your holiday meals?

holiday meal on festive table
Photo by Kaboompics.

Lower Oil Prices Mean Slashes in Food Costs

Since the agriculture industry uses oil in its farm machinery, its agricultural chemicals, and its transportation of farm output, oil prices remain a fundamental driver of consumer food costs.

According to the U.S. Department of Agriculture, energy and transportation costs represent about 8 percent of the total cost of domestically produced food. Fertilizers, chemicals, lubricants and fuel make up about 50 percent of production costs for corn and wheat crops in developed countries. Thus, the year's decline in oil prices will trickle down to food costs, said a January report from Rabobank.

Rabobank, a multinational banking company based in the Netherlands, predicted that lower oil prices in 2015 would lead to a direct drop in food production costs — creating lower prices for consumers. And it looks like that's exactly what has happened.




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