The Tipping Point: Energy forecasters predict $12 to $15 for a gallon of gas
Tuesday, June 10, 2008 at 05:19PM
Senior Energy Advisor, Robert Hirsch recently told CNBC that the today’s gas prices will soon be referred to as “the good old days”. He, and other energy watchers, are predicting that the price of a gallon of gas could rise as high as $12 to $15 a and there is no solution in sight. Energy forecasters further predict that once gas prices reach those levels, gas rationing will need to begin. Don’t think it could happen? It did in the 70s. Yes, the 1970s, just a few decades ago. During that time OAPEC decided to penalize countries, namely the U.S., Japan, and Western Europe, because they were supporting Israel during the Yom Kippur War.
After the OAPEC embargo took effect in the 1970s, consumers in the U.S. bought gas when the government “said they could”. If your car’s license plate ended in an odd number, you were allowed to buy gas on odd numbered days. If your license plate ended in an even number, you were allowed to buy gas on even numbered days. Sounds pretty easy, doesn’t it? Well, it was, if your local service station had gas that is. It wasn’t unusual to drive up to a service stations and see a “No Gas” or an “Out of Gas” signs. The U.S. government never implemented gas rationing coupons, although they had printed during 1974 and 1975, in anticipation of a prolonged gas shortage.
The recent news about fuel prices, may be the kind of scenario that Malcolm Gladwell was referring to in his book called”The Tipping Point”. The premise of his book is that “little things can make a big difference”. The tripling of gas prices, that experts are predicting, will undoubtedly change life for all of us in a very, very big way.
“We live in a world where there is only about 1.2% more oil available each year, not enough to keep up with 1.5% annual demand growth.”- Charles T. Maxwell, senior energy analyst at Weeden & Co., known as the “dean of energy analysts.”
Imagine for one moment, just some of the vehicles that rely on fuel everyday - trucks delivering products to retail and grocery stores, school buses transporting children, police, fire, and ambulances responding to emergencies, employees commuting to work, commercial and private airplanes carrying vacationing and working passengers, public transportation buses, taxi cabs, taking people to doctor’s appointments, etc. All of them, all of us, will have to develop strategies to manage the financial burdens placed on us by when gas prices hit an all-time high. In addition to the increased costs of transportation, we’ll also face record heating oil prices this winter, that will send heating bill costs to all-time highs. How will companies affected by the added fuel expenses deal with it? They will deal with it, in the same way that we and the cities and towns we live in will - - by cutting their expenses and/or increasing their income to make their budgets balance.
The way it looks right now, prices on consumer goods will need to increase if businesses expect to buffer themselves from the dramatically rising costs of fuel and raw materials. Every part of the logistical process from the farm to the local grocery store will be severely affected by the increase in fuel prices. Experts warn that we may be paying as much as an 80% price increase for food. Some say that buying locally grown foods may become the norm for shoppers, as consumers try to eliminate the increase caused by distribution costs. But, when the fuel crises ends, will the price of food and other goods return to pre-fuel crises prices? It didn’t happen in the past.
When the price of sugar skyrocketed to $5 for a 5 lb bag in the 1970s, the cost of breakfast cereals tripled and in some cases, quadrupled in price. When sugar prices eventually settled back to pre-increase levels, breakfast cereal prices should have followed suit. They didn’t. The cereal prices that we’re paying today, I believe, were in part, created during the sugar price increase of the 70s. An article posted on Money Week in 2006 predicted the demand for sugar worldwide would drive sugar prices higher again, as strong demand for the sweeter comes from countries like China.
How high will cereal prices go now that fuel, corn, wheat, and sugar prices are on the rise and the demand from high population countries like China increases? How long will it be before a box of cereal costs $8 a box or more? I think Malcom Gladwell hit the nail right on the head. Little things can make a very big difference.
Escalating food costs could present a greater problem than soaring oil prices for the national economy because the average household spends three times as much for food as for gasoline. Food accounts for about 13 percent of household spending compared with about 4 percent for gas. Several factors contribute to higher food prices, analysts say, but none more than record prices for oil, which last week closed above $105 a barrel. Oil is not only driving up production and transportation costs, but also adding to demand for corn and soybeans, used to make alternative fuels such as ethanol and biodiesel. – Surging costs of groceries hit home
In addition to product price increases, businesses are also employing another strategy called surcharges and service fees.
“I was just listening to the news this morning and they were saying that companies will be adding surcharges for coming to your home. Like the utility companies and so on. I just had the cable company come to my home and I was charged 10.00 for a truck charge.” – comment by a contributor to the End Time Chat forum
Northwest Airlines has announced that due to the continuous increase in fuel prices it will increase its fuel surcharge by $10 each way, matching the increase first implemented by Delta Air Lines and matched by United Airlines, American Airlines, and Continental Airlines. The company said that this will bring the fuel surcharge on domestic fares to $65 each way. - Northwest Airlines to increase fuel surcharge by $10
Delta Chief Executive Officer Richard Anderson has said U.S. airlines must raise fares by 15 percent to 20 percent just to break even at current fuel prices. – Airlines increase surcharges on fuel
Although, experts are painting a grim picture of the fuel, food, and jobs in the U.S., I think I’ve found a bright spot for job hunters. As fuel costs go up, having a top-notch logistics team will become a “must” for manufacturers and distributors across the U.S. Having a team that can distribute goods, maximizing savings, and still keep a company competitive will have companies lining up on the door fronts of proven logistics professionals.
If you have experience in the logistics field, NOW is the time to start a relationship with an executive recruiting fir! Executive recruiters, who specialize in Logistics, will be the first order of business for hiring companies.
If you’re serious about your career, get a cover letter and resume to the SearchLogix Group, as soon as possible. SLG specializes in matching qualified job candidates to some of the best Logistics jobs in the country. Once they have your resume, you will automatically be considered when they receive requests from their ever growing list of client companies.
For more information about topics covered in this article:
Why sugar prices have soared on Money Week
Read more about the gas price predictions on CNBC
9 ways to save gas from the Wall Street Journal
10 fuel saving tips from About.com
33 gas saving tips from funandsafedriving.com
Reader Comments (2)
Very interesting post! Thank you for your thoughts. You do make a good point!