The Impact of Oil Price Shocks on the Price of Petroleum Jelly
Petroleum Jelly: An Overview
Petroleum jelly, commonly known as Vaseline, is a product widely used for its moisturizing properties in various personal care, medical, and industrial applications. It is derived from petroleum and is primarily used as a barrier cream, protective ointment, and as a shearing agent in many products. The production of petroleum jelly is closely tied to the price of crude oil, as this raw material is a key component in its manufacturing process.
How Oil Price Shocks Affect Petroleum Jelly Prices
Crude oil prices play a significant role in the cost of production for petroleum jelly. When crude oil prices soar, the overall cost of producing petroleum-based products increases, potentially leading to higher retail prices for consumers. However, several factors can influence the extent to which the price of petroleum jelly rises in response to these oil price shocks.
Market Demand
The demand for petroleum jelly can affect the pricing dynamics. If demand remains steady or increases, manufacturers may pass on higher production costs to consumers, leading to increased prices. On the other hand, if demand drops, manufacturers may have less incentive to increase prices.
Supply Chain Factors
Disruptions in the supply chain or changes in production capacity can independently impact the pricing of petroleum jelly. For instance, if there are logistics and transportation issues, or if a significant portion of the production capacity is halted, this can drive up prices regardless of crude oil prices.
Alternative Products
The availability of alternative products, such as plant-based or synthetic alternatives, can influence the demand for petroleum jelly. If consumers or businesses opt for cheaper or perceived greener alternatives, the demand for petroleum jelly may decrease, potentially leading to lower prices.
Market Competition
The level of competition among manufacturers can also limit the extent to which manufacturers can raise prices. In a competitive market, if other manufacturers hold prices steady, it may be difficult for any one manufacturer to significantly increase the price of their petroleum jelly, even if production costs rise.
The Role of Supply and Demand
While crude oil prices do play a role in the cost of production, the law of supply and demand is often the primary factor determining the final price of petroleum jelly. When demand for petroleum jelly rises, manufacturers can typically pass on higher costs to consumers, leading to increased prices. Conversely, if demand decreases, manufacturers may lower prices to maintain sales.
According to some perspectives, demand for petroleum jelly has been driven up by government-related activities, such as public health campaigns and policy measures aimed at promoting its use in various applications.
The Back-of-the-Envelope Calculation
Let's consider a back-of-the-envelope calculation to understand the relationship between crude oil prices and the cost of petroleum jelly:
We assume a crude oil price of $100 per barrel. The specific hydrocarbons used in petroleum jelly are generally in the same ballpark as the overall crude oil price. A 50g jar of Vaseline can be purchased on eBay for around $7.50, which translates to 59ml of petroleum jelly. This works out to 2659 jars of Vaseline per barrel of oil. Therefore, each 50g jar of Vaseline would have cost approximately $0.038 worth of oil to produce.
If the price of oil doubled overnight to $200 per barrel, the cost of producing a 50g jar of Vaseline would increase to approximately $0.076, or $7.60. However, if your pharmacist rounds off to the nearest 10 cents, you would not even notice the difference in price.
It is also worth noting that the non-fuel part of crude oil is significantly cheaper than the fuel part. Therefore, if crude oil costs $200 per barrel, the raw materials for petroleum jelly might only cost around $40 per barrel. This makes the price of Vaseline almost impervious to fluctuations in crude oil prices.
Conclusion
While the relationship between crude oil prices and the cost of producing petroleum jelly is undeniable, various market dynamics can significantly influence the final price. Supply and demand, the cost of raw materials, and the availability of alternative products all play crucial roles in determining the price of petroleum jelly. Understanding these factors can help consumers and manufacturers better predict and respond to changes in pricing.