Gas Price Fluctuations Leave Many Wary

By Dana Sagona

Kenneth Layton Jr., a union iron worker from Kingston, travels 150 miles round trip five days a week to get to his job in Rockland County. During the summer, when gas reached a record average high of $4.31 per gallon in New York State, Layton was spending about $40 a day- almost $200 a week- to get back and forth to work in his Jeep Wrangler. Spending a majority of his income on gas meant cutting back on other necessities.

“I was eating peanut butter and jelly a lot,” said Layton. “When you’re paying more for gas it cuts back on being able to buy food or take the dog to the vet. If you’ve got to go to the hospital, you just can’t do it because you’re putting so much into getting back and forth to work.”

However, because of the current economic downturn and the decrease in energy demand, gas prices are back in the $2 or less range, with a barrel of oil dropping to about $60 this month- a 57 percent decline from a record high of $147 in July. For Layton, and many other Americans, the unprecedented plunge has made filling up a gas tank financially less burdensome (AOL).

“Now it’s only about $25 tops to get to work each day,” said Layton. “I can actually afford my apartment.”

The average American consumes approximately 500 gallons of motor gasoline per year, whereas the average Canadian consumes approximately 310 gallons, according to the Department of Energy. However, according to a recent report from the U.S. Department of Transportation, Americans drove more than 100 billion fewer miles between November 2007 and October 2008 than the same period a year earlier, making it the largest continuous decline in American driving in history. High gas prices from the summer have caused many Americans to alter their driving habits and, to a greater extent, purchase fuel efficient vehicles, despite the recent drop in prices. Many people, however, have begun to travel and drive more now that gas prices are lower.

This summer, Jim Bessey, a self-employed contractor from Fairport, N.Y., and his family had to leave their camper behind when they took a trip to Lake George, putting a damper on their hopes to go camping.

“We did the math and it was more practical to drive our car, versus the truck to pull our camper, the 230 plus miles and pay in-season rates for a hotel room,” said Bessey. “With the camper attached, the truck gets only 10 miles per gallon, so over 40 cents a mile. For that trip, and for a half-dozen others we’d considered, the camper sat unused in our driveway.”

With the average cost of gas per gallon in New York State at $2.41 as of November 17, many Americans are slowly reverting back to their old driving habits (See chart). For example, Bessey and his family “changed their approach” when it came to non-essential driving and they optimistically put $400 worth of new tires on their camper to pass its inspection, and now have once again started to consider more trips.

“It got a bit dusty, literally and figuratively, this summer, but with gas prices declining and possibly stabilizing we should be back on the road,” said Bessey of his camper. “We did take a nice overnight trip to the casino near Salamanca, using the car and leaving the gas-guzzling truck at home.” He also added that long distance trips to visit relatives in Michigan or Philadelphia are no longer out of the question, though nothing has been planned.

“I’ve no doubt that prices will rebound on a whim, with little or no warning,” Bessey said.

Bessey may be sure that prices will increase again, but depending on who ones listens to, the jury is still out on the future of gas prices. Jim Mulva, the chairman and chief executive of ConocoPhillips, one of the largest international energy companies, predicts that gas prices will stabilize at $3 per gallon.

Mulva explained in an interview with the Associated Press that prices increased this summer because oil companies were unsure if they had enough supply to meet the demand, especially the demand of China and India’s economies. The war in the Middle East and hurricanes also concerned oil companies and effected prices.

Mulva said after the erratic price fluctuations, stabilization would be $80 to $90 a barrel, or $3 per gallon. “That would be a good price for balancing supply and demand and the cost of energy to the public,” Mulva said.

The Organization of the Petroleum Exporting Countries (OPEC), a group of 13 oil producing nations that controls 40 percent of the world’s oil output, has called an emergency meeting one month earlier than its usual December meeting to discuss decreasing the output of oil because of a lack of demand.

David Blume, ethanol expert and author of “Alcohol Can Be a Gas!,” said the decrease in gas prices was completely expected. According to Blume, every two years, right before a federal election, gas prices decline significantly and Americans should expect gas prices to shoot back up again by March 1st (see chart below).

Blume, an advocate of ethanol energy, said one positive outcome of high gas prices was the “huge investment in various alternatives to oil.”

“By making the price of oil volatile, you keep the alternative energy community constantly on edge,” said Blume. He said President-Elect Barack Obama “understands the way out of peak oil,” and when looking at his voting records for renewable fuel, he has a “100 percent rating,” as opposed to Sen. John McCain’s “zero percent rating.”

During the election campaign, Obama laid out what seemed to be a comprehensive plan to fund alternative energy and encourage Americans to invest in alternative vehicles. He plans to issue a $7,000 tax credit to those who purchase advanced vehicles. He also plans to get one million plug-in hybrid cars on the road by 2015, and assures Americans they will be built here in the United States. These cars can get up to 150 miles per gallon (www.barackobama.com).

Senator John McCain’s campaign took a different approach to energy, and favored energy independence by utilizing domestic supplies of natural gas, a stance popularized with the slogan “drill, baby, drill!” McCain also proposed expanding oil exploration in the Outer Continental Shelf, as well as finding other possible oil reserves (johnmccain.com).

Exxon Mobil, the largest U.S. oil company, recently announced record-breaking quarterly profits of nearly $15 billion. Under Obama’s plan, oil companies will be required to take a reasonable share of their record breaking windfall profits and use it to provide direct relief worth $500 for an individual and $1,000 for married couples. The relief would be delivered as quickly as possible to help families cope with the rising price of gasoline, food and other necessities, according to his official Web site.

For some, however, Obama’s plan may be too late. High oil prices have changed what Americans want from their vehicles. General Motors, well known for its large trucks and once an industry leader, is now asking the federal government for emergency assistance, claiming they will face bankruptcy in mid-2009.

Local car dealerships are also suffering from the shift in consumer preferences. Ryan Anderson, business director for Highland Auto Group, which includes Highland Chevrolet and Ford, said this past summer, sales for sport utility vehicles (SUV) and V8 trucks were “almost to the point of non-existent.”

“Historically the last several years people bought an SUV because they wanted it, they liked the looks of it, it was a more emotional buying decision and a status symbol,” said Anderson. “What we saw in the summertime was an extreme demand for four cylinder cars.”

Manufacturers, however, were unprepared for the demand because ordering cars is projected four to six months ahead of time. This left showrooms with an abundance of SUVs and trucks and sold out of four cylinder vehicles.

According to Anderson, dealerships in the Hudson Valley that were leaders in their market and delivered 200 to 300 cars per month have now closed. “This dealership in five years, I hope that we’re here,” said Anderson. “But, in this current market there’s a projection of 800 car dealers going out of business this year at a bare minimum.”

However, decreasing gas prices may give Anderson some hope. According to a recent article in the New York Times, Tom Libby, senior director of industry analysis with J.D. Power & Associates, said “the large pick-up share in September and October was healthy, up substantially over May and June. And the percentage of vehicles sold with 4-cylinder engines- more than 50 percent of the total in May and June- declined to 42.6 percent in October.”

Given Libby’s statistics coupled with everyday civilians’ plans to travel more, it’s as though many Americans have forgotten about the summer and just how high gas prices can get.

Susan Quade, an adjunct psychology professor at the State University of New York at New Paltz and an industrial and organizational psychologist, said that many Americans “think cars and gasoline are part of our right to do the things we want to do and we tend to feel resentment and a lot of rebellion about having to change that thinking.”

Quade said people initially resent high gas prices, but after a short while accept them. “We remember for a while and feel the pain…and then we get used to paying $2.50, $3, $3.50 for a gallon of gas and it becomes like anything else, it’s just what it costs, and then you kind of revert back,” Quade said.

According to Quade, compared to how high gas prices were this summer, we consider prices today to be cheap, which influences spending habits. She pointed out, however, that prices in the mid $2 range aren’t cheap at all given the history of gas prices. Compared to10 years ago, in November 1998, gas was about $11 per barrel. Five years ago, in November 2003, gas was about $27 per barrel- a large increase from 1997, but still significantly less than the $60 per barrel today, or the $80 to $90 prediction from Mulva.

“We do get into that sense of euphoria as soon as those gas prices drop,” Quade said. “All of a sudden it’s like it’s really OK, and the rational thing is that it’s not OK. We really need to start thinking about this much differently.”

Please Note: Story was written pre-election 2009



Dana Sagona

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Sound Off! Gas Prices

Wed Dec 10 , 2008
Written and Reported by Dana Sagona. Produced by Tyler Antrim. One of the consequences of the current economic crisis has been the drastic decline in gas prices. Now that prices at the pump are back down in the $2.00 range, people say they’re not as worried about how much they […]