Posted Date: July 2, 2008
Gas Prices Hitting Pockets, Changing Ways We Live
By Leonard E. Colvin
Chief Reporter
New Journal & Guide
A year ago, Kimberly Gaymon rolled off a local car lot with a brand new Nissan Armada SUV, when Hampton Roads’ gas prices were below $2.50 on average, a dime below the national average.
What a difference a year makes.
Now it costs the Gaymons about $100 to fill-up. With gas around $4 plus per gallon, here, and higher elsewhere, the Gaymons, who are both professionals with decent salaries, are looking to unload their gas-guzzling SUV which only delivers about 11 miles per gallon in the city and a stingy 14 on the highway.
“It was nice because of the room it provided for us and four kids, but it is hurting us each time we go fill-up,” said Gaymon. “We are trying to trade it in for a car that would give us more mileage per gallon. But the dealers are saying they don’t want it because they have so many sitting on the lots now. Plus, if we trade it in, we would not get much in return.”
It’s a common dilemma these days. Folks are turning to trade-ins, car pooling or catching the bus. For the first time in 10 years, AMTRAK, the government-funded railroad company, has seen a rise in ridership.
The era of the big SUV may be over. Local and national economists say that the days of gas being at or below $2 may be history, too.
It’s just a small part of the misery index many working- class Americans are experiencing as prices rise and the economy declines. Food costs more, whether it’s the high costs of transporting meat and vegetables to the local markets or feeding a family at home or in a restaurant.
The last time the nation saw gas prices increase sharply was during the recession in the mid-70s. Gas jumped from less than a dollar to $1.50 in some parts of the nations. Americans long for those days now.
There are several reasons why, according to two local academicians, who are keeping a watchful eye on the economy which may be showing signs of slowing to recessionary speed.
First, hungry economies in Asia, specifically, China and India, are growing. While expanding economies like China are exporting billions of dollars in electronics and clothing to the West, it is importing an increasing share of the world’s oil supplies to run their powerful manufacturing machinery.
China, which has no oil resources of its own, is buying large sums of petroleum from all of the world’s suppliers, at or above market prices. Many of the producers are unable to keep up with the daily demand and thus the price increase.
A barrel of oil on the world market currently stands at $138.05 a barrel ( June 26).
“The U.S. imports 60 percent of the oil it uses,” said Dr. Gary Whaley, dean of Norfolk State University’s economic’s department. “Containing the price of that oil is a factor the United States and other importers do not seem to have any control over. The markets, not the government or the oil companies, control the price of oil any on any given day.”
Whaley said the United States is consuming the same level of oil it did prior to the recent upsurge. “We are just competing with more countries for what’s out there in the market. The cost of transporting and refining the supply is getting higher and impacting the price.”
“While Kuwait and Saudi Arabia are extracting its normal level of oil each day,” Whaley continued, “Iraqi oil production has been down since the war started (from three million to one million a day).”
“When the rebels attack facilities in Nigeria, a third of their production is affected. So the world-oil supply and market prices are determined by world-political stability, too.”
Dr. Charlie Turner, who is in the department of economics at Old Dominion University, said the weakened dollar and the large U.S. trade deficit are also factors.
Refineries have increased expenses which translate to about 33 percent more. Meanwhile, speculators increase the price, too.
“These people are gambling on the price of oil in the same way they would bet on the future of the price of corn or wheat,” Turner said.
“They go out and buy barrels of oil for $100 and hope it rises to $140 and higher and it does and so does their profit (margins) on the commodity. The people who are running the markets are doing well, too, and want the cost of oil to remain high because of demand and market competition among importers.”
Oil companies bought stakes in oil fields, years ago, when the price of oil was less than $30. Many hoped to just break even down the road. Now that the prices have jumped they are reaping huge profits, mostly from producing crude oil from the wells in those fields and converting it into gasoline. Plus no refineries have been built in over 30 years. So the cost of refining in old inefficient facilities is adding to the cost, Whaley added.
But there is a bright side to the high cost of gas, Turner noted. “The high price of gas could make people reduce their driving and thus petroleum consumption. Reductions in the demand for oil, price for gas and the rate of global warming are good for the environment.”
Both Turner and Whaley said state and federal politicians have done little to reduce oil consumption such as imposing higher taxes or developing alternatives to petroleum-based fuels.
Recently, while being questioned by members of the House Energy Committee, oil company executives admitted they spent more on advertising than developing alternatives to oil-based gas.
GOP nominee Senator John McCain has proposed not imposing the 18 cents federal tax on gasoline during the summer. Turner believes the Republicans’ proposal is “a gimmick.”
“The tax holiday would only make people drive more and use more gasoline. The politicians do not have the political will or courage to make the tough measures,” said Turner. “We are not willing to make the hard sacrifices toward conservation to end our addiction to oil. So economically we will suffer for it with high gas and food costs.”
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