Archives for January 2016

Mustafa Koc, the head of Turkey’s massive conglomerate Vehbi Koc, has died yesterday of a heart attack. He was 55 years old.

The group of companies accounted for roughly 5% of Turkey’s GDP. In addition, he carried on his father’s (the founder) business partnership in Ford. Ford has seen particularly significant growth all around Europe, and its relationship with V.K. has certainly helped propel its popularity in Southeast Europe and Western Asia.

Bill Ford, Ford Motor Company’s executive chairman, released the following statement regarding the passing of Mr. Koc:

“We are deeply saddened by the loss of Mustafa Koc and extend our deepest condolences to his entire family. Mustafa was an outstanding business leader, a man of true integrity and a loyal friend and partner to Ford over many decades. He also was a very close personal friend. His family and mine have a special relationship that goes back to Henry Ford and Vehbi Koc. I will miss him personally and professionally.”

Whether it appears as a top headline for every news outlet, or the signs next to gas stations everywhere, you probably noticed that gas prices have hit a downward spiral lately. And, boy, a gallon is really, really cheap. The Southeast region, which includes Louisiana, also features the Gulf of Mexico as a next-door neighbor. So Louisiana’s gas prices have traditionally been among the lowest on average compared to all other states.

But this is different. You could purchase a gallon of gasoline, aka a liquid with the capability of taking you 10-25 miles, for the same price as (or occasionally even less than) a single bottle of water. Now, why is this happening?

Over the past few years, the U.S. began to produce more and more of its oil domestically (and importing from Canada), therefore curbing its reliance on importing from international producers such as Saudi Arabia, Russia, and Iran. South American nations, particularly Mexico and Brazil, have the same story. This has come at an enormous cost to international countries that once thrived off exporting to nations such as America, but that’ve now lost that (and other) major piece of business.

So, demand reduced, and in order to keep prices at equilibrium, so should production. However, none of these countries are curbing their operations- they’ve decided that they’d rather take the hits of high production costs than lose market share. These international countries are essentially in a battle with each other-and because they’re all continuing to produce mass amounts, we now have an enormous oil surplus. Low demand + high supply= lower prices.

And as we’ll dive into soon, this phenomenon has a great amount of winners, and a great amount of losers.

Long story short, gas prices have plummeted over the past few months due to an international production glut and stagnated demand. As always, low oil/gas prices has its winners and losers:

WINNERS:
-The middle/lower class- gas prices are always a tricky expense for those within low-to-average income brackets. For those driving every day, spending less and less money on gas during every pump visit will add up to relatively significant savings over a period of time.
-Convenience/mega-stores- Savings compiled from spending less on gas, especially for the middle/lower class, are often spent on food and other necessities at stores such as Target, Walmart, Wallgreens, CVS, and 7-11.
-Airlines- lower gas prices are a significant operations expense for airlines, making gas prices a factor in setting price-points for plane tickets. When prices are this low, airlines get to lower their airfares, which leads to more travelers, which leads to both lower operating costs and higher revenues for airlines.
-Frequent air-travelers and drivers- for the same reasons already listed above.

LOSERS:
-Stock traders/investors- the stock markets have gotten crushed lately over plummeting oil prices. The DJIA (Dow Jones Industrial Average) hemmoraged nearly 10% of its value over a disastrous 2 weeks in the stock market. This could also mean trouble for 401k account holders who invest their savings in publicly traded companies.
-Southeastern economies/ oil industry- in states such as the southeast, where the oil industry remains a large part of its economies, lower gas prices (lower oil prices), causing less revenue for oil companies, usually means large lay-offs for the sake of lowering production costs, whose effects tend to trickle down to other industries in those states.