Posted on 02/29/2008 6:15:45 AM PST by Diana in Wisconsin
Crude oil prices hit record highs again on Thursday, underpinning an expensive plateau at the pump that may force motorists to change their spending habits if not their travel plans.
Motorists not only are paying more at the pump today - an average of $3.11 a gallon in Wisconsin - but also are likely to soon pay more for a wide range of products because diesel fuel prices have reached record levels: $3.66 a gallon in Wisconsin and an average of $3.63 across the country.
That's roughly $2 per gallon more than farmers and truckers paid five years ago for the fuel they need to produce and deliver food and a broad array of goods.
A farmer who uses 5,000 gallons of diesel, for example, will pay about $10,000 more for the fuel to plant and harvest a crop than they did a few years ago. The record crude oil prices, a close of $102.59 per barrel Thursday, also are likely to push up the cost of fertilizer and other goods that require petroleum products in any fashion.
Nearly every invoice that crosses Jerry Bradley's desk now includes a fuel surcharge for delivery of the raw materials he uses on his corn and soybean farm in rural Dane County. He figures he'll pay that extra cost at the front end as a producer and the back end as a buyer.
"The bottom line is the consumer is going to pay it," Bradley said. "My tires, clothing, everything is going to be higher."
Those future price increases will compound the pressure on family budgets caused by the more visible drain: ominously high gas prices.
At $3.11 a gallon, regular gas costs 66 cents more than it did at this point in 2007, months before the usual spring and summer ramp-up. Last year, the price reached a record $3.42 a gallon over the Memorial Day weekend, and some analysts have suggested the annual increase in driving will push the price to $4 a gallon this summer.
Economists worry that the added burden on consumers will draw money from the broader economy. The question is where will they cut back to pay more for fuel.
Russ Kashian, an associate professor of economics at the University of Wisconsin-Whitewater, has his answer, based on researching his own family of four: the Friday night fish fry.
"We stay home and have pizza instead," said Kashian, who drives his Ford Explorer 40 miles to work from his Muskego home.
He figures the cost of higher gas prices on the family budget in simple terms.
A family that drives 30,000 miles a year buys about 1,500 gallons of gasoline. When the price per gallon goes up $1, that takes an extra $1,500 a year out of a family's coffers, or about $30 a week.
He finds that $30 in the family budget by going out to eat less often, and figures others will make similar choices but not curtail their driving.
"You have to get to work, and you have to get the kids to school, and you have to do the grocery shopping," Kashian said.
Even at $4 a gallon, the figure that some experts foresee later this year, Kashian would expect little change in fuel consumption.
It remains to be seen what price will push motorists to curb their driving. Last year's $3.42 a gallon wasn't it.
State gas tax collections reached a record last year, topping $1 billion, showing that consumption flowed despite the high prices.
Kashian and others expect low-income residents and the larger economy will be hurt most by the increased gas prices.
One economist from Harvard University, Kenneth Rogoff, was quoted in The New York Times saying the high oil prices could be the factor that tips the U.S. economy into a recession. His colleagues view the surge in oil prices as particularly dangerous for an already lagging economy because of the continuing decline in the housing market and pressure on consumer borrowing.
Increased costs to produce and transport products will raise prices and tap more dollars from consumers, even those who don't rely on automobiles.
"I think low-income families certainly will suffer from this, and it often becomes a matter of buying gas for your car or buying food for your family or providing health care for your kids," said Rob Henken, president of the Public Policy Forum. "In all likelihood, this would have an impact on the number of people seeking safety net services."
William Holahan, chairman of the economics department at the University of Wisconsin-Milwaukee, concurs.
"For people finding tight budgets, as the economy is already slowing down, they're in for a rough time," Holahan said.
The veteran economist expects the worldwide demand for oil will sustain the high prices - $100 a barrel for crude oil and $3.10 a gallon for gasoline - as plateaus rather than spikes, at least in the short term. Those types of spikes previously followed major upheavals, such as the Iranian revolution and the Iraqi invasion of Kuwait.
The higher fuel prices are having some effect on motorist behavior already. Smart Cars are now being sold in Milwaukee and sales of hybrid cars are increasing, while sales of light trucks and sport utility vehicles have flattened or declined.
Fuel consumption, however, has not decreased significantly overall, and sweeping changes are most likely still years away.
"The thought is that people are going to go to smaller cars that get better gas mileage, but it takes years to turn over the fleet of cars that people are going to drive," Kashian said. "The choices we made in 2000 to drive Expeditions and Tahoes are having impacts today."
The point of the market is to slowly boil the water.
This is why oil predictions are self-fulfilling. we will see $4 a gallon because it was predicted.
Oil cartels and enemies of westernism control this price like a volume knob, and as such it’s as possible to “predict” their prices as it was for my mother to “predict” how loud I listened to my Gary Numan records.
True, tough to say what oil would be at if there were no hedge funds/day traders in it. Maybe $50 or $60. There has been real demand increases from India & China although it’s basically flatlined in the US. I’m not sure what gas price will be required before people that don’t need them dump their huge SUVs and start driving more fuel efficient cars. I feel bad for the large families and people who need them or a large truck for work but anyone else is basically pissing money away and sending a large portion of that money to countries that hate us.
BTW—I was more convinced than ever than when I heard CNBC telling people to go long oil at $100/barrel. I’m just waiting for the latest bubble (commodities) to burst. I’m going to go with late this year or early next year depending on whether the US hits a recession or skirts it.
How about ONE Dollar per day in fuel cost?
Get a Zap yhey are just right for most people around town driving.
Or, independent truckers. Then again, the wife and I just drove out to Colorado from Tennessee for a week or so of skiing and I'd estimate 50% of the vehicles on the road where truckers. I drive an F-250 turbo diesel and I'm hauling my truck camper. I've paid as much as $3.60/gallon for diesel on this trip. Outward appearances are that the price doesn't seem to be slowing the trucking industry one iota.....however I think the fuel prices are showing up in other areas of the economy.....
Monopoly prices for a monopoly product paid for by deflated dollars.
Gas taxes are as close to a pay-by-usage system as any government program comes. That is the model we should be pushing, not running away from.
Cutting fuel taxes means subsidizing road users with higher income and property taxes instead and those taxes are even more odious.
The retail company I work for started having to pay a fuel surcharge about 2 years ago and it’s gone up since then for truckers.
Nope, a 3 ton SUV remains the same discretional luxury no matter how many kids they have. If they wanted cheap, there was always a minivan.
Fair enough, but don’t minivans get the same crappy MPGs as mid/large SUVs? Never been in the market for one so wouldn’t know off the top of my head.
>>”The bottom line is the consumer is going to pay it,” Bradley said. “My tires, clothing, everything is going to be higher.”<<
Well, I start the bike commuting season soon, and we have a large garden now. Clothing can last quite a while.
I am not calling for a boycott, but my specific family has already started a multi-phase plan for rolling back spending. And it is not so much about money as about principle.
It started with combining trips and avoiding unnecessary trips. My wife is even getting a basket for her bike to pedal to our local produce/meat market a little over a mile away.
So far it is actually quite staggering how much we are saving - and improving our lifestyle to boot!
The overall impact on my family is actually positive, even though we DO pay more for gas. When we use it, that is...
There are two possible routes out of the housing/credit crisis:
1. 1930’s style depression, or worse.
2. Hyper-inflation, effectively monetizing everyones debt.
Some in high places seem to be pushing for the latter. We will see if it is within their power.
I feel like I am living in a movie.
>>It’s one thing if you got 4 kids and a full house to have a big SUV...<<
Not even then. That is what mini-vans are for. They have more room and get better mileage. They also have better ingress and egress.
SUV’s are pretty much all about ego. They are like Corvettes. Not that I am judging anyone other than to say they are making a choice I would not make - but then, I am weak in other areas. It’s a free country and people can buy what they want, but few actually “need” an SUV in an urban area.
Yup, you are right. I was thinking minivan’s MPG wasn’t much different than an SUV (never have/will shop for one). Then there really is no reason for a large SUV at all.
Glad I got my Honda Fit last year, went from 24mpg station wagon to 36-40mpg in the Honda. Little car has lots of room for a small car. So far my favorite car I’ve ever bought.
I suspect all three.
>>So far my favorite car I’ve ever bought.<<
Exactly how I feel about my Scion xB (the small, lighter style). And I’ve owned 28 cars in my life.
I am so done with “big”, although my wife still loves her Chrysler 300M. When that dies though, we are replacing it with a two seat convertible. The Scion can be our “costco trip” vehicle.
If this keeps up they will have the masses to be scared of too
Doubtful, very doubtful, and if it did occur, it would be due to a reduction in supply caused by the lost of refining capacity in the U.S. We are teetering on the brink in that area.
Our dollar should strengthen again by late 2008 or early 2009, but even that is not going to cause 4$ gas.
Supply is what will do that if it happens and only for a short time.
In any case, I'm prepared for it. Food and necessities have all experienced price increases, and I have adjusted by reducing debt and increasing savings.
Glad I finally got my divorce debt paid off this past month, I should be able to ride this out as long as I keep my job.
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