4 Ways You Can Benefit From Cheaper Oil

For more than a year, oil prices were the bane of consumers' budgets. Not only did the cost of a barrel of oil — which peaked at $145 in early July — translate into higher prices at the pump, but it also meant higher prices for heating and electricity, groceries and any other product or service that needed to be transported from one place to another.

But now, consumers are seeing some relief. As a result of the looming global economic recession, slower consumer spending and high domestic unemployment, oil prices are hovering around a two-year low of $54 a barrel, according to the Energy Information Administration (EIA).

Of course, it's near impossible to predict how long these relatively low oil prices will last. However, Neil Gamson, an economist at the EIA, believes that the price of a barrel of oil won't return to triple digits anytime soon.

One thing is certain, though: "As long as the price of oil remains low, the consumer will see savings," says Gamson. In fact, the slide in oil prices has already spilled over into some consumer spending categories (check out the latest prices at the pump). Other goods and services, however, will take significantly longer to reflect the difference.

From a gallon of milk to your monthly heating bill, here's how lower oil prices will impact your bottom line:

Gas

Falling oil prices are most immediately seen at the gas pump. Drivers are now paying on average less than $2 a gallon for the first time since 2005.

On Monday, the average price of regular gas fell to $1.91 per gallon, down from $3.09 a gallon last year, according to AAA's daily fuel gauge report.

However, drivers shouldn't get too comfortable paying current gas prices. The EIA predicts that regular gas prices will spike next year, reaching $2.23 a gallon in January and up to $2.47 a gallon by August. Those projections, says the EIA's Gamson, may be ratcheted down if consumers drive even less and if the economy continues to slow.

Utilities

Don't worry about wrapping yourself in blankets all winter long in order to stay warm. Lower heating bills are on their way.

Earlier this year, the EIA projected that the 2008-2009 heating season would be even costlier than the previous one. Luckily, the tide has turned and consumers can expect to see some relief in the months ahead.

According to the EIA, residential heating oil prices from October 2008 to March 2009 are expected to average $2.75 per gallon, a reduction of about 17% from the previous heating season. And residential propane prices are projected to drop 10% to $2.22 a gallon. Homes using natural gas, however, won't be so lucky. Natural gas prices are projected to increase by 2% to $13.02 per thousand cubic feet, in part because natural gas utilities stocked up during the summertime when it was more expensive, says Gamson.

Airfare

Following months of fare hikes, flight cutbacks and new fees, airlines are finally giving fliers a much-deserved break with domestic roundtrip tickets going for as much as 50% less than they did a month ago, says Rick Seaney, CEO of Farecompare.com, a consumer airfare research site.

Airline fuel prices typically move in tandem with the price of oil, says Ed Perkins, contributing editor for SmarterTravel.com, a travel tips and booking site. "This summer, the worry among the airlines was how can we squeeze enough money out of the travelers to cover our fuel costs," says Perkins. Airlines invoked so-called fuel surcharges. In July (when fuel prices were heading toward their peak last summer), a roundtrip airfare from New York to San Francisco for a 14-day stay cost $568 on United (UAUA). Today, the airline’s cheapest roundtrip ticket for the same route is $218.

Now, with the economy stalling and demand for flying flagging, the airlines' dilemma is trying to find tactics to fill up the planes, says Perkins. However, the airlines have yet to dump the fuel surcharges entirely — they just quietly rolled them into the price of airfare discounted the fares, says Seaney. "When oil prices dropped [fuel surcharges] became a liability from a public relations standpoint," he says. "So [the airlines] just slid it into the overall ticket price."

(For more on fuel surcharges, read our story).

Groceries

Oil prices may be down, but food prices have barely budged — and probably won't at most of the major grocery chains.

The consumer price index — which measures the average price of consumer goods and services each month — fell 1% between September and October, the biggest one-month decline since February 1947. Bucking the downward trend in prices, however, were prices for food and beverage, which actually climbed 0.3%.

That movement is a bit of an anomaly, says Geoff Cooper, vice president of research at the Washington, D.C.-based Renewable Fuels Association (RFA). Typically, food prices drop with the price of oil since a chunk — some 16%, according to the Department of Agriculture — of the price accounts for transportation, fuel and packaging costs, he says.

Yet, even though food manufacturers are paying less to transport the goods to your neighborhood grocery store, they aren't cutting prices. One area where shoppers will see some relief is in the dairy section. Many supermarkets are starting to lower the price of milk and eggs, which entail less labor and transportation costs since the products travel a shorter distance than processed packaged goods like breads and cereals, says Cooper.

Another place to seek out deals: smaller grocery stores, which are lowering prices to remain competitive with their bigger counterparts, says Cooper. Wegmans, for example, which operates supermarkets in Maryland, New York, New Jersey, Pennsylvania and Virginia, recently imposed price cuts that it says can save families “as much as $40 to $60 a month."