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RISING OIL PRICES AND THEIR IMPACT ON THE ECONOMY, THE CONSUMER AND THE REAL ESTATE INVESTOR

03/01/2012

   The last time I wrote about escalating gasoline and fuel oil prices was approximately August, 2008.  That was the last time that gasoline prices hit the $4.00 mark in many parts of the United States.  That was also the last time that oil exceeded the $100 per barrel mark for only the second time in history.  The price of a barrel of oil translates directly into higher energy prices.  I predicted then that the super high cost of gasoline and fuel oil would throw this nation into a recession.  Indeed, the cost of fuel was one of the important factors in causing the massive recession America has experienced since at least September, 2008.

   Nobody can predict the future, but I am afraid that we are repeating history all over again.  Gasoline prices have surpassed $4.00 per gallon and fuel oil #2 is beyond $4.00 per gallon, for the past couple of weeks.  These price increases seem to be continuing even though a large part of the world is still in recession mode.  News reports yesterday indicated that nationwide gasoline prices have risen for the past twenty-two days.

   So what does President Obama have to say?  Yesterday his Press Secretary blamed spiraling fuel prices on the Republicans and oilspeculators.  The President, unfortunately, had nothing concrete to tell the public.  He has no new ideas to break the back of these increases.  He only knows how to bash the Republicans, his political adversaries.

   Fortunately, there are some solutions which we will address at the end of this article.

IMPACT OF OIL PRICES ON THE ECONOMY
 
   These escalating prices will have a major impact on the economy.  The possibility of a relapse into another recession increases with each passing week that we are affected by these high prices.  Many in the Bush administration in 2008, rejected the notion that higher fuel prices would cause a recession.  Obviously, history proved them wrong in a very big way.  The same thing is happening now and will impact on all of us in the coming months and years, unless something is done about the present situation.  On a practical level, the following will occur:
•    Gasoline prices will cause many businesses to have reduced profits because of the escalating overhead associated with transportation costs.
•    Airlines will continue to falter because a major part of their budget is fuel oil.  Indeed, American Airlines recently filed for bankruptcy protection because of continuing pressure on its bottom line from higher energy prices.
•    Landlords who use fuel oil will continue to see an erosion of their bottom line because of the higher cost of fuel oil.  While the lower forty-eight states in the United States have experienced the warmest winter in thirty years, it doesn’t mean that the summer will not reach high energy peaks.  We burn fuel on a year-round basis.
•    People will drive less, vacation less and spend less because of the erosion of their buying power with the ever escalating price of gasoline.
   These times call for leadership.  Unfortunately, we are sorely lacking that, in our national government.  The election for President does not help matters, since it merely causes the political parties to stay in their entrenched positions, without giving thought to how to help the economy and our average consumer.

OPTIONS
 
   If the government is unable or unwilling to reduce your exposure to these ever increasing energy costs, then you, the consumer, must do so.
I suggest the following tactics be employed:
•    As a landlord, convert your oil-based boilers to gas boilers or gas/oil dual boilers.  The price of gas has been low for the past few years.  Supplies are plentiful.  Many such conversions are paid for in whole, or in part, by the local gas companies.  This tactic alone can reduce your operating costs by many thousands of dollars annually.
•    Purchase smaller, more fuel efficient cars and trucks.  This is easier said than done.  In our mini-van generation, it is hard to find a cost-efficient vehicle, but at least we have to try.
•    Change the boiler in your private house or condominium to gas heat.  While the cost benefit analysis may show that it will take longer to pay for this change, it is definitely something worth investigating.  Making a bet on the fact that gas prices will be lower than oil prices for the foreseeable future and beyond, is a fairly safe decision.
•    Install solar energy wherever possible.  I have written about solar energy in a recent issue of this newspaper.  It really is a no lose proposition.  The fact that it takes a little longer to recoup your investment, should not delay implementation of this major energy saver.
   In summary, there are many things that we can do, individually and collectively, to soften the effects of what seems to be the inevitability of increasing energy prices.  It is up to every one of us to take these actions, and others, to stem the tide of ever increasing costs imposed upon us by OPEC and the other oil-producing countries.
 
 
 

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