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High Crude Oil Prices Raise Prices On Everything

On July 16th, for the first time in recent months the price of a barrel of crude oil went down more than $10. It gives us some hope that the price of crude oil may drop further as either demand continues dropping, or if by some chance, supply increases.

The effects of high crude oil prices are insidiously working their way through the world economy. Because oil is at the core of almost everything we do; any dramatic price shifts are almost immediately reflected in major product segments. From airline ticket prices to tires, from the price of a grape fruit to a three pound can of coffee. Even the price of electricity is impacted by higher petroleum prices.

While companies, governments and individuals all share in the pain of higher oil prices; ultimately it is the individual who pays for all of it. Companies are owned by individual investors, government is funded by individual taxpayers and it is the individual consumer who buys the products and services marketed by companies. So, in the end high oil prices are all about how it impacts families and the individual consumer.

How does the average Joe react to the price of gasoline increasing 25-percent per gallon in less than six months time?

The answer depends on whether the increases are sustained over a long period of time, or if it is a short-term spike as in the case of a Middle East flare that is over and forgotten in less than two weeks.

Unfortunately, our current round of ever-higher crude oil prices seems to be a sustained, long term trend. The available evidence suggests that we need to adapt to the higher prices. Individually we are going to have to make many changes in our appliances, transportation and housing to cut costs while maintaining the standard of living we want.

Technology will in many cases help us cut our energy consumption through new efficient designs. Other techniques, such as a recirculation pump on our hot water heater will also help us save energy and thereby save money. It is unlikely that there is any one big thing out there that will be the total answer to our energy needs; more likely it is going to be a collection of small savings here and there that add up to big savings for the individual.

Individual conservation is important and a part of the solution to this complex problem, but public policy is also an equally important factor. Part of the reason we have this problem is because we need to increase domestic supply and distribution. This week there is good news on that front as well with President Bush lifted the executive order banning off shore oil exploration and production. He also called on Congress to do away the similar legislative ban.

We can only hope that Congress was listening.