Prices Surging for Oil-Based Goods

L ess than half of every barrel of crude oil extracted from theground is refined into gasoline. The rest of the barrel is used inthe production of an estimated 57 other major types ofgoods—goods like kerosene, asphalt, antifreeze, cleaningfluids, laundry detergents, paint, pharmaceuticals, cosmetics,hygiene products, diapers, dvd s, plastics, and even the waxes in chewing gum. In the form ofpetrochemicals, oil is the key ingredient in thousands of otherproducts. Because of this heavy reliance on petroleum for a vastvariety of uses, the effects of high oil prices are spreading wellbeyond the gasoline pump.
“Not quite half of what we consume is energy, food, and othercommodities that are significantly affected by the rising cost ofpetroleum,” says Mark Zandi, chief economist at Moody’s Economy.com.
In the last 10 months, crude oil prices have increased from $74 a barrel to $134 a barrel. Because of this, the price of asphalt has alreadyincreased 65 percent this year and Dow Chemical has announced a 20percent across-the-board price hike on all of itsproducts—which range from antifreeze to cleaning products topharmaceuticals. Other companies, like Procter & Gamble, Cloroxand Kimberly-Clark, are following suit and raising the price on avariety of their products by 4 to 13 percent.
The skyrocketing price of asphalt means that road construction andrepairs are becoming much more expensive. Highway contractors arealready saying they are reducing the number of projects planned dueto increasing costs. Bumpy roads may just be a fact of the future.
Retailers cannot absorb all of the increasing costs of production;they have to pass a portion of them on to consumers. That means asoil prices rise, a wide variety of goods are going to get a lotmore expensive for the average consumer. As Ann Paulins, directorof the School of Human and Consumer Sciences at Ohio University inAthens, warns , “It’s just the tip of the iceberg.”
In America, trends like this only serve to decrease consumerspending, which currently accounts for approximately 70 percent ofthe nation’s economic activity. Rising oil prices couldeasily drive America into recession. For more information onramifications of rising oil prices, read our September/October 2004print edition article “ Black Gold .” See also “ The First Oil Shortages ” and “ Can Saudi Arabia Boost Oil Production? ” •