Metro Monthly

by John Patrick Gatta
Metro Monthly Staff Writer

Economic analysts, billionaires and members of the Bush administration can debate whether or not the United States is in a recession, but certain factors cannot be denied. While some Americans find themselves in a sudden money crunch due to the complexities of the financial world and housing market, nearly everyone is affected by the upswing in oil prices.

Now that the United States is joined by China and India as major importers of crude oil, it’s become a seller’s market with prices rising nearly 60 percent since 2006 and a barrel reaching a new record price of more than $100. In some cases, increases in fuel costs have dramatically affected the budgets of local drivers, businesses and homeowners.

As commuters fume about skyrocketing prices when they fill up their cars, George Axiotis, owner of Short Stop Truck Plaza in Leavittsburg, explained that by the time gasoline reaches the station, consumers see very little mark up.

“No matter what the price of oil is, at the retail level you’re getting the best possible deal that you can get. The retailers are generally selling it to you for very close to what they paid for it.

“Up the supply chain, that is where the money is made,” he said. “The oil companies are making money the entire process – from exploration to refining to shipping it in pipelines to wholesaling. In turn, wholesalers, eventually, sell it to people like me. Market forces have taken all of the end profit out for non-oil companies.”

According to the chart “What We Pay For In A Regular Gallon Of Gasoline” on the Web site, www.fueleconomy.gov, the cost of a gallon of gasoline can be broken down this way: 68 percent toward crude oil; 13 percent in taxes; 11 percent in distribution and marketing; and 8 percent in refining.

Axiotis’ business, which is located in Trumbull County near an Ohio Turnpike exit, receives a mix of drivers commuting along Route 5 and truck drivers carrying goods across the state. Independent truckers have been hit particularly hard due to the continuing increase in the price per gallon for diesel fuel.

A recent Scripps Howard wire service article on the struggles of independent truckers put the cost of filling a tractor-trailer at approximately $700, with an average fuel economy of only 5 to 6 miles per gallon. Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association in Grain Valley, Mo., believes that as much as 10 percent of its 161,293 members have given up on making a living in their own rigs. “Right now they are likely spending $70,000 to $100,000 a year just for fuel. We are talking about losing half of their net income for the year. They simply cannot survive.”

Axiotis further explained the dire situation. “Because of the competitive nature of the trucking industry, the fuel surcharges that they’re demanding in order to haul, for example, from here to Cleveland are not keeping up with their expenses.

“The independent truckers get hurt first followed by the smaller trucking companies of 10 to 20 trucks, they go down second. The large companies tend to just absorb it, and will use this as an opportunity to squeeze the competition,” he said.

The demand for home heating oil during the winter months also caused an increase in the price of diesel fuel. Axiotis described the two fuels as being the same – with the only difference being one includes road taxes added to the final cost. With the cold season extending for a longer period of time this year, the inventory for diesel has remained lower than normal, further affecting many homeowners.

Due to increased costs, truckers and long-distance commuters suffered double jeopardy if they were homeowners. According to the March 19 government newsletter, “This Week in Petroleum” (http://tonto.eia.doe.gov/oog/info/twip/twip.asp), both heating fuel costs and diesel prices rose to record highs. At that point the average gallon of heating oil rose above $3.85, above an average of $3.25 a gallon from the beginning of winter to mid-March. Over the past month, the Web site reported that diesel continues its rise in price, reaching an all-time high average of $3.97 per gallon. That’s an increase of $1.29 from a year ago.

The unpredictable increases in fuel costs have had some families mulling their vacation strategies for summer.
“We have heard from members who are concerned, and a lot of them are weighing out the pros and cons of driving versus flying,” said Bevi Powell, communications director with AAA East Central District in Pittsburgh. “As gas prices go up, it closes that gap. But when examining further the costs for a family vacation usually it’s still cheaper to drive than flying because you have to rent a car and things like that.”

A CNN/Opinion Research Corp. poll taken in mid-March found that, due to rising fuel prices, 64 percent surveyed have changed their driving behavior with 19 percent cutting back on their driving and 5 percent stopping altogether.

Powell believes that if people do decide to travel less, it may result in a boon to regional theme parks and hotels. “Last year we also hit record high gas prices, and even though we still had a record high number of people traveling, what they were saying was they weren’t going quite as far or they weren’t staying quite as long.”

As of March 25, the AAA fuel survey for Youngstown had regular unleaded gas listed at $3.22 per gallon. A year ago, it was $2.53.
The sting from rising prices may not be over. With spring’s arrival, refineries make the change from winter-grade to summer-grade blends. The government-mandated switch creates a shift in supply, and, as a result, the price per gallon will likely move upward.
“This is the time of year when gas prices are a little bit lower because we haven’t entered into the high demand travel season yet. Typically, we see those prices peaking around Memorial Day,” Powell said.

Powell couldn’t comment on whether travel plans have definitely changed or whether Americans remain steadfast in their vacation wishes since many AAA members seek maps and travel advice shortly before Memorial Day weekend.

Rising fuel costs also have affected local business owners. “Basically, it’s the same as everybody else is going through,” said Anthony Ciminero, owner of Ciminero’s Banquet Centre in Niles. His deliveries now include a fuel charge. Many companies started that practice last fall, in order to offset rising fuel costs.

With most of this year’s prime catering dates booked, Ciminero is already taking reservations for 2009 with inquiries about dates in 2010. Minus a crystal ball, he’s unable to surmise how much more his delivery costs may increase due to the continued rise in fuel costs. To illustrate how quickly fuel prices have affected business costs, he mentioned a client’s recent last-minute request for additional cases of cavatelli for an event. Expecting to pay the usual amount, Ciminero found out that the pasta had gone up $3 per case since his last purchase. In the end, business owners like Ciminero must compensate for the additional cost by passing it on to the customer.

“In our contract it clearly states that we are not held responsible for increasing our prices due to unforeseeable things such as operating expenses – cost of food increases or utility increases. That’s clearly stated in our contract, as I’m sure is stated in all contracts in the same type of business that I’m in. It’s very difficult to monitor what’s going to happen a year from now.”

He admitted that, while some have complained, most people understand that the additional costs to him need to be absorbed through an increase in what he charges.

Suddenly finding out that there will be additional charges for a wedding or other special event due to increased fuel costs is never welcome but at least it’s a financial choice that’s not life threatening. With rising fuel prices, many middle and low-income families are finding it difficult to maintain the same standard of living that they enjoyed a little over a year ago.

The CNN/Opinion Research Corp. poll found 72 percent of respondents feeling that price increases in gasoline have caused financial hardship.

A front page Washington Post article titled, “Inflation Hits the Poor Hardest,” discussed how staples such as gasoline, groceries, health care and other basic needs have risen much higher in cost than luxury goods. Since 2006, the average middle-income U.S. household has spent $378 more per year on gasoline with an extra $38 going toward fuel oil.

And with the increased cost of bringing goods to market, many American consumers have found higher bills at the grocery store.
Some area residents believe that one way to control fuel costs is to purchase grocery items closer to home, thereby eliminating some of the cost associated with transporting goods from a farther distance. One group in particular, Grow Youngstown (www.growyoungstown.org), is spearheading an effort to encourage residents to buy more local produce. Like many buy-local, buy-fresh initiatives, Grow Youngstown sees its goal of bringing fresh organically grown produce and communities together as a step toward positively responding to the increased costs for food.

Elsa Higby, Grow Youngstown founder, pointed out that despite a feel-good image, some organic foods, when shipped great distances, actually consume more fuel in their creation, handling and shipping than cheaper conventional produce.

Higby and others are attempting to advance the idea of a production/consumption circle that’s closer to home. “What we’re looking at here is wanting to create a local food system where we can encourage more people who are already farming vegetables on a small scale to increase that scale, to provide them with markets through subscription memberships where you buy shares in that farm’s produce.”

“It’s fuel efficient, not necessarily on my end because I still have to drive to pick up my vegetables, but you’re saving the energy input used from external sources. You’re helping lessen the (carbon) footprint of Youngstown, Ohio in the overall fuel economy. And, of course, everything is much fresher because it’s picked that day so you have a much higher content of nutrients. And, additionally, you have a higher content of nutrients because they’re grown in soil with no chemical input.”

In such an arrangement, participants would purchase shares ($340 for 17 weeks), with the subscription able to be split by more than one participant.
Higby saw such a community project first-hand when she lived in New York, where unused urban land was transformed into vegetable gardens.

Producing food to counter fuel costs is also gaining attention among global energy producers, but end result is vastly different in application and philosophy. Using foodstuffs, particularly corn, in the creation of fuel has been highlighted as a counterbalance to crude oil imports and as a more environmentally-friendly source of energy. With corn as a main source for biodiesel, it’s rapidly become a possible replacement source for a gallon of unleaded. And with high-profile proponents such as Willie Nelson and Dave Matthews Band using it for their tour buses, this potential fuel has moved ahead of other alternatives in public awareness.

At the beginning of 2008 Brazil required all diesel fuel to include 2 percent in biodiesel material like corn. Besides a desire to reduce pollution, the change will increase this country’s growing market for the product. With a combination of soybeans, castor seeds, sunflower seeds and palm fruits to fuel it, Brazil currently has 44 biodiesel plants authorized by the National Petroleum Agency. Another 17 are being prepared this year, with plans to increase the percentage of the biodiesel blend to 5 percent by 2013.

Yet despite biodiesel being a cleaner-burning fuel, opponents charge that it takes more energy to create. In addition, some environmentalists worry that increasing acreage for soybean farms will lead to an increased depletion of the Amazon Rainforest.
Local retailers like Axiotis remain skeptical about biodiesel becoming competitive with conventional gas anytime soon. He cited the need to create additional refineries for production and new tanks to distribute it to consumers.

“It’s way too expensive up here,” he said. “You couldn’t sell it at this point. There’s still a question of acceptance with it amongst drivers, a question about performance that hasn’t really been answered.”
Anxiety over rising fuel costs have led to doomsday scenarios in cyberspace with some prognosticators taking the controversial stance that the world is depleting its supply of fossil fuel. One such site, Alternet (http://www.alternet.org/environment/21588), discusses the theory that oil production will hit its peak sooner than expected, within the next decade or two, causing fewer and fewer barrels of crude to be extracted. If their projections hold true, alternative energies will not only be necessary in aiding Americans hurt by rising fuel prices but critical for keeping the world moving at its present speed.

For now, the simplest method to bring down the price of crude oil, and, in turn, the price of gasoline and all that it affects, is to drive less and use less fuel. As Axiotis points out, when inventories are filled the price of a barrel drops.