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."
It’s all about the future traders. CNBC has been telling people that oil is long buy at $100 this week. Speculation may send it to $4.00 briefly this summer. I can handle the increase as well as I’ll simply drive out less. Work is only 11 miles round trip for the wife and I so that’s not too bad and I get around 28 mpg in the city.
A full size SUV weighs 1500-2000 lbs more than a minivan and drops about 5 mpg which translates to a 40% higher gas bill.
The only thing a real SUV will do the minivan won’t is tow other luxury toys - large boats, horses, campers, etc.
Which isn’t to say that SUVs should be restricted in any fashion, just that the people who buy them have forfeited the right to complain about gas prices.
They wouldn’t be allowed to raise other taxes to compensate. Also, although I’m sure this is not the case in reality, aren’t the taxes on fuel allocated to a different “pocket” from other taxes? And therefore only to be used on road projects etc?
Fish Fry. There’s your Million Dollar Idea! Start pestering a local restaurant to start that tradition in SD and make yourself and the restaurant a nice chunk-o-change within the year.
Fish isn’t always cheap, but fries/baked taters and coleslaw certainly is! Throw in an Old Fashioned and you’re aces, LOL! :)
Brilliant! And as the owner of a Dodge Ram diesel, I would sign on to that in a heartbeat. :)
“It may take $5/gal to do it.”
Darlin’? It’s going to take the cancellation of The Indy 500, The Daytona 500 and my local Friday Night drag track to get most Joe & Josephine Six Packs to sit up and take notice!
When your favorite NASCAR race is canceled due to a lack-o-fuel, or the expense thereof, you let me know. Until then, I’m not worrying about gas not being available. Expensive? Most likely. Not available? Nope. ;)
P.S. Matt Kenseth Rocks! :)
Thanks! I’m going bigger and better on my next purchase. My kids are grown and I’m basically a victim in my small sedan against other SUVs on the road.
I’m in the market in the next few years to buy something used and beefier. With flames on the side and all the extras. ;)
“And it is not so much about money as about principle.”
Amen! I’d put you and me and those of our ilk up against ANY EnviroWacko any day of the week to see who lives more “lightly” upon this Earth!
Keep up the good work. I have always been cheap. It has served me well. And that’s why the Left p*sses me off so much! They can’t possibly conceive, in their tiny little pea-brains, that people like us put the “Conserve” in “Conserv”ative. :)
For the truckers that work for large firms, yes. The independents don't have that luxury.....
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