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."
Can’t be pimpin’ in no Smart car.
Part of the reason for high oil prices now seems to be the failure of global warming to produce. People are using petroleum products to heat their houses.
Global warming has been a real disappointment here in Illinois this year.
And the recent highs have nothing to do with the weak dollar either. My Tahoe did it all by itself.
Could it be that the continuous purchasing of oil to be placed in our national emergency reserves is sustaining a high demand?
Could it be that continuous and expanded military operations are taking oil away from the civilian market?
Or, could it be that supply and demand have nothing to do with current prices and that they are controlled and contrived by speculators with the government's blessings???
One of the few things I miss about formerly living in SE Wisconsin.
I say we make eco-nuts and liberals FEEL PAIN for getting us here.
Was thinking about this this morning. If a politician wanted to score a bunch of points with a bunch of different groups, all they’d have to do is propose stripping off a bunch of the taxes on diesel.
1. This would likely make it more reasonable for people to buy diesel vehicles
2. This would reduce the pain for farmers and truckers, making it easier to put food on their families’ tables
3. This would reduce the cost of food transport, making it easier for everyone else to put food on their tables.
4. This would put another stake in the heart of the ethanol boondoggle, dropping the price of food as we stop burning it
5. This would revitalize biodiesel/alternative diesel (think coal gasification) research, since the lower cost will spur demand (reducing our dependence on foreign sources of petroleum)
6. The (now) more cost-effectiveness of diesel would put more companies to building diesel vehicles, which (if you’re into that kind of thing) would reduce the impact on the environment, and also would put more people to work
7. Would, as a corollary to the reduced pain on truckers, enable more people to remain or go back into business as independent owner-operators, thus improving the employment situation
8. Would reduce the amount of money available for the government to waste on boondoggle road projects like the Big Dig, thus (theoretically; we are talking about politicians here) forcing them to make more cost-effective decisions on projects.
There are probably more reasons to do this, but I don’t see a downside. I mean really, $3.50 for a gallon of diesel is just stupid.
IMHO $3/gal isn’t enough to impact things much - which surprises me because I was sure it would.
I don’t see ANY reduction in traffic congestion or freeway speeds.
It may take $5/gal to do it.
My little 35+ mpg Saturn looks better every day.
The SUV is gonna get a lot of garage time this year I’m afraid.
$4 per gallon gasoline is a liberal wet dream.
It will only happen if we attack Iran.
What is it going to take to tell the libs and environazis to just shut up and get out of the way of drilling ANWAR and off our coasts? there’s oil there for the taking. We can go get it. Build several sparkling new refineries, pump the oil out of the ground, refine it and sell it here in the good ole U. S. of A.. And tell the environazis to bite it.
No kidding. Every time I see a giant SUV and the person in it/owns it whining about gas I just laugh. It's one thing if you got 4 kids and a full house to have a big SUV but most of the people around here that have them are single or married with no kids and just had it as a status symbol.
Some advice, if you want an SUV, get something like the Hyundai Sante Fe. It gets ~25 mpg highway, comes with a 100k mile warranty, and isn't very expensive.
The weak dollar would have sent oil from $15 to 25/30, not to $100. The rest has been demand and speculation.
I wouldn't be so sure of that. Gas went up 80¢ from this time last year to summer. A repeat and we are at $4 by summer.
Might?
It’s been predicted. It’s a given.
See, the *experts* were right again....
Not us. We switched to natural gas in Nov and saved $300 a month in heating costs alone so far this year.
More than paid for the good deal we got on a used furnace.
I’m surprised more people have not switched to electric or natural gas from petro products to heat their homes.
And, IMHO, it's mostly speculation.
In order to be an oil futures trader these days you have to be scared of your own shadow, scared of your neighbor's shadow, scared of what happened last week, scared about what might happen next week, or the week after, etc.....
We’d do wood if we could.
The way this house is built, putting in a fireplace chimney would be a major undertaking, we don’t have the money, and we’d lose our whole dining room, the only room practical enough to put it in.
The dining room is central in the house. Any other room wouldn’t allow for it to heat more than that room.
“$4 per gallon gasoline is a liberal wet dream.
It will only happen if we attack Iran.”
I heard this same statement about $3 per gallon of gas.
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