Last modified: Monday, March 20, 2000 1:00 AM EST Oil price hike hurts everything (March 19) BY RICK THURMOND / SUN CHRONICLE STAFF Shocking as the spike in the cost of home heating oil was this winter, it could be only the beginning of rising prices in more ways than you might imagine. High oil prices mean more than heating bills too hot to handle and pain at the gasoline pump. Our everyday lives are steeped in oil or petroleum byproducts, and when the price of oil goes up, so can rents, groceries, appliances, anything made of plastic, even the asphalt surfaces on which our gas-guzzlers roll. ``At its root, everything is affected by the price of oil, if for no other reason than transportation costs are very important,'' said Robert Kaufmann, an associate professor at Boston University's Center for Energy and Environmental Studies. ``The price of everything you touch is affected.'' Higher fuel costs caused Ford Motor Co. to raise its vehicle delivery charge by $25 earlier this month, and General Motors is thinking of raising its destination charge, too. Federal Express has announced it will raise its 3 percent surcharge on shipping imposed earlier in the winter to 4 percent. But look no further than your neighborhood supermarket for higher prices to really hit home. Thus far, most supermarket chains have held the line on price increases since the fuel crunch hit. But with its thin profit margin, the industry says it can't afford to absorb many more hits. ``Hopefully, prices will start to go down,'' said Rick Hagopian, executive vice president of Ro-Jack's Food Stores. ``But if this goes on much longer, you're going to see prices go up.'' The grocery industry is most affected by the high cost of motor fuels. ``The majority of products in our stores are hauled overland by truck,'' Hagopian said. Ro-Jack's is paying a 9.5-cent surcharge per mile on trucking now just to get items on the shelves. In the case of produce, it can be a long haul -- from Mexico, California and Florida. But there are many little ways the cost of oil eats at the bottom line. Consider the filmy plastic bags shoppers use to carry home groceries. Their price is up 9 percent from last year, Hagopian said, and Ro-Jack's goes through a half-million cases of plastic bags a year at 12 stores. Shaw's supermarkets hasn't raised prices yet, either, spokesman Bernard Rogan said, ``but sooner or later the price of oil will affect others in the food chain.'' ``All kinds of things are affected,'' he said. ``Packaging is a byproduct of oil.'' The food industry is among the most susceptible to fluctuations in oil prices, apart from the cost of transportation, Kaufmann said. Tractors that plow the fields run on gasoline or diesel and petroleum byproducts are a component of fertilizers. If the cost of grain goes up, so does the cost of bread. And so, too, does the cost of milk and meat because grain is used to feed livestock and poultry. ``The price of oil has the potential to affect everything you buy,'' Kaufmann said. A lot is riding on how high the price of oil goes, and how long high prices will last. This winter's fuel shortage was triggered by a decision of the Organization of Petroleum Exporting Countries (OPEC) to hold back oil production. That caused the price of a barrel of crude oil to almost triple in price from about $10 a barrel last year to almost $30 a barrel this winter. OPEC has indicated it will increase production slightly in April, so as not to stall the world economy. But the U.S. Energy Department projects that oil still will cost between $22 and $28 per barrel by the end of this year, and between $19 and $26 per barrel by the end of 2001. Moreover, petroleum stocks likely will remain at a near record low through 2001, energy analysts say, so a disruption in supply or an extreme cold snap next winter could cause heating oil prices to spike again. If the average homeowner was hard pressed to keep the oil tank filled at $2 a gallon in January, consider the landlord with multiple properties. Many area landlords converted to natural gas with separate meters for each unit following the first energy crunch in the 1970s, said Robert Cauger, president of the Attleboro Area Rental Housing Association. ``That was the way to go,'' he said. ``Put in a separate heating system for each tenant, and they heat as much as they want. It's wholly their responsibility, like the electric meter.'' But in the bigger buildings with central heating systems or for landlords of triple-deckers who still provide heat and hot water from a basement oil burner, higher rents might be on the way. ``Ultimately, it's going to be passed on to the tenant, the end user,'' Cauger said. ``I think you're going to see the rents going up. Landlording is a business. You've got to make a profit.'' While natural gas prices didn't spike to the extent heating oil did, residential prices were higher this winter than last. And with higher prices expected at the wellhead this year, the Energy Department projects the residential cost of natural gas will rise 10 percent by next winter. One reason natural gas prices are expected to go up is because of increased demand from industry and utilities. So far, Massachusetts Electric has not raised its fuel adjustment charge this year despite higher oil and gas prices, but it could happen before long. The electric utility is allowed to do so only when its fuel costs reach a certain point, based on a complex formula negotiated with the state Attorney General's office that takes into account the 12-month average price of heating oil and natural gas. ``Despite the costs of oil and gas have escalated, the fuel adjustment charge will be the same unless we reach that trigger point,'' Massachusetts Electric spokeswoman Karen Berardino said. ``If things continue to escalate remarkably, then who knows? We could have to make an adjustment.'' If the increased cost of fuel is passed on to the consumer, then it will be collected over the course of the next year, she said. Manufacturing in Massachusetts has not been drastically affected by high oil prices this winter. That's so for a few reasons, said Brian Gilmore, spokesman for Associated Industries of Massachusetts: Manufacturers tend to buy materials in long-term contracts. Many industries have converted to natural gas. And a warmer than normal winter has held down heating costs. But Gilmore added, the trend ``could be disturbing for the long term. It may be bubbling beneath the surface.'' Some industries are more affected than others. Knobby Krafters in Attleboro, which molds plastics, has seen the cost of raw materials creep upward 5 percent since the first of the year, plant manager John Specht said. ``It is a concern,'' he said. ``We hope it doesn't impact us too, too much. Our price structure is already set for the year. We're at the point now where we can't charge more.'' And just before the spring and summer paving season, area asphalt plants, which are heavily dependent on petroleum products, report the cost of manufacturing is up 50 percent over last year. With winter essentially in retreat, consumers' attention is shifting away from heating costs to the price at the pump. Last week, the American Automobile Association pegged the average price of regular unleaded gasoline at $1.54 a gallon. The Energy Department projects the average cost of gasoline will reach $1.80 a gallon during the peak driving season. That's assuming no disruptions in supply which could cause the price of gasoline to spike even further. Nonetheless, consumers show little sign of altering the kinds of cars they buy. The sale of sport utility vehicles was up 17 percent in February compared with the same period last year, according to industry statistics. The Ford Explorer outsold all car brands. ``People are outraged at the price of gasoline, but they still have the same buying pattern in spite of it,'' said Ron Tondreault, owner of Fireside Nissan in North Attleboro and Bristol County director of the Massachusetts State Automobile Dealers Association. ``I came back from the new car show a week ago, and there was absolutely no talk about the impact of fuel prices on sport utility vehicles,'' he said. Tondreault has a theory: ``During the energy crisis in the 1970s, you saw people bailing out of Cadillacs, even if they had to take a $4,000 hit. We forget the real problem then. It wasn't the price of gasoline; it was a matter of not getting any. Gas stations were closed. There's a profound difference between saying you can't have gasoline, and saying you can have it for a price.'' In fact, while gasoline prices are approaching the highest price ever in the U.S., the Energy Department said, when adjusted for inflation, gasoline is 16 percent cheaper than the price spike during the Persian Gulf War and 40 percent less than in March 1981. Karen Avrill of Norton is a soccer mom extraordinaire with five children, including one in high school, who play the sport. She and her minivan are on the go, especially on weekends. ``We can be anywhere from Falmouth to Dartmouth to Fall River,'' Avrill said. ``Sometimes my husband and I split up and go in different directions.'' So far, she is undaunted by high gasoline prices. ``I'm not happy about it,'' Avrill said. ``But you have to do it. I'm not going to sacrifice their playing soccer. It's not like gas is being rationed.'' But like a lot of motorists these days, Avrill rarely fills the tank. ``I put my $10 in and see how far it goes,'' she said. ``That way, it doesn't seem like I'm paying that much for gas.'' It might take a while for motorists to react to higher gasoline prices, Boston University's Kaufmann said. ``They haven't filled up the gas tank too often, so they haven't dropped $30 to $50 that often,'' he said. ``And look at what those cars cost. If you spend $30,000 on an SUV, do you really care if gas costs an extra $20 a week. My guess is no.'' The larger question is what impact high oil prices will have on the overall economy. The good news is despite all the ways oil seeps into our everyday lives, 20 years ago its cost accounted for 6.5 percent of the gross domestic product, compared with about 2 percent today. That's so, the energy analysts say, because of conservation and inflation-adjusted oil prices have increased at a slower rate than other consumer prices. Still, if we spend more for gasoline, heat, lights and food, how much more will we have to spend at the mall? And, Kaufmann said, ``What will prices over the coming months do to interest rates? It could put a crimp in the economy.''