Reaping benefits, paying the price for higher fuel costs

A few years back, then-Oklahoma City Mayor Kirk Humphreys was trying to gauge whether the public might support creation of a light rail system. He quizzed friends, wanting to know at what point they might consider abandoning their vehicles and flocking to public transportation.

The crowd listening to Humphreys laughed as he quoted one friend who responded he would only consider such a switch if gasoline hit $4 a gallon.

In the pre-Sept. 11, 2001, world, such a price seemed inconceivable to Humphreys' audience.

Oklahoma City still doesn't have a light rail system, but that $4 a gallon isn't a fantasy anymore with crude oil hovering at $90 per barrel.

Economists say the public has adjusted well to the changes, and Oklahoma could come out a winner with even higher prices.

But with oil threatening to hit $100 a barrel, will Oklahomans be forced to re-examine how they conduct their daily lives?

Mark Snead, a research economist at Oklahoma State University, has spent the past five years tracking the increasing price of oil and thinks the overall impact is a plus for Oklahoma.

"Oklahoma continues to get a strong net benefit from these energy prices,” Snead said. "The impact seems to be larger in terms of income rather than employment. The employment gains are there, but the increase in incomes is larger.”

In a best case scenario of higher oil prices, Snead even suggests Oklahoma could see a dramatic increase in migration from other states.

State Treasurer Scott Meacham, meanwhile, sees a state that is struggling with fuel costs but enjoying a robust economy brought on by the higher prices.

"We are an oil and gas resource-rich state,” Meacham said.

"With major oil companies located in this state, we benefit from the employment and taxes paid by these companies.”

That's not to say the rising oil prices aren't forcing any changes in Oklahoma households. Meacham himself traded in an SUV for a hybrid car, and is waiting for his second sport utility vehicle to hit 100,000 miles before making yet another such trade.

Brad and Amy Johnson, parents of eight children, have noticed the price increase at both the gas pump and the grocery store.

"We've had to cut costs,” Brad Johnson said. "But with gas being over $2 a gallon for some time, I don't know if it's any more difficult now than it has been the past two years.”

Johnson said he might have envisioned a scarier scenario if he had been told five years ago oil might reach $100 a barrel.

"We're trying to make less trips, and we're cutting down on other things that aren't necessities like food — eating out, the fun stuff.”

Beyond gasoline's climb toward the $3 mark, the Johnsons have noticed the price of milk rising to $4 a gallon, and a carton of eggs rising from less than $1 to $1.50.

Phil Kenkel, an agricultural economist at OSU, cautions against blaming all increases at the grocery on the rising price of oil.

Kenkel said the fuel spikes have been a tough hit on farmers — especially those with marginal-yield operations. He estimates every 50-cent increase for a gallon of diesel translates into a 5 percent or $5 an acre increase in production costs.

"It definitely impacts farmers' prices,” Kenkel said. "So if you think about $100 per barrel of oil, you're talking about a 10 to 15 percent increase in farm production prices.”

But farm prices, Kenkel said, are just a fraction — maybe 15 percent — of the overall food dollar.

"The cost of producing bread is about 15 cents,” Kenkel said. "The rest of the price is all value-added costs.”

The increase in milk prices paid by the Johnsons, he said, is the result of changes in supply and demand, and not fuel hikes.

"It's always a misconception that a cost increase to the farmer is passed onto the consumer,” Kenkel said. "It's shared along the way.”

Kenkel said Oklahoma farmers producing hay and corn are feeling the worst brunt of fuel spikes, with the least impact hitting those harvesting soy beans.

Farmers are facing steep increases in the cost of fertilizer, and are gambling on when to fill up fuel tanks, he said.

"There is a lot more risk on the input side,” Kenkel said.