Squeeze's Effect Is Amplified

from the Wall Street Journal

Prices Can Go Higher Before More Try to Save, But Pain Is Spreading

Motorists aren't waiting in long lines for gasoline. Consumers continue to spend. Affluent Americans remain barely affected.

The U.S. economy has proven remarkably resilient during oil's rise to $100 a barrel. The last big surge, almost three decades ago, contributed to a moribund economy and tight times for many.

Yet as the fourth year of rising fuel prices filters down to the pump, to grocery bills and to the thermostat, the cost is clearly starting to pinch some Americans. Gasoline prices lately -- now averaging about $3.05 for a gallon of the regular variety, according to federal data -- are near their highest since 1981, adjusted for inflation. Heating oil also is at historically high levels once adjusted.

Many Americans have made only small changes -- meaning oil has room to climb before Americans take bigger steps. For the less-affluent, the tough times are here. "Those folks are already being squeezed, but they'll be squeezed even more," said Nariman Behravesh, chief economist at Global Insight, an economic forecasting and consulting firm.

Ripples are being felt in ways big and small. A look at how some are coping, and benefiting, from a new era:

The Commuter

Monique Blasko, 40 years old, lives in Frisco, Texas, a rapidly growing suburb almost 30 miles north of Dallas. Because of higher gasoline prices, "I just don't feel as free to just go," she said.

Between gasoline and entrance costs, Ms. Blasko didn't make a 50-mile trip to Fort Worth last summer to take her three kids to its museums. Instead, she took them to the local shopping mall or the park, or she let them watch videos at home.

She no longer travels to a grocery store a few miles to the south that has slightly lower prices. Instead, she buys groceries at Frisco stores.

But she still does plenty of driving. Ms. Blasko fills up her Ford Expedition about twice a week, at $70 a pop. During the holiday season, some weeks she filled up her tank three times.

For a school project, her daughter calculated that the truck gets 10 to 12 miles a gallon, which means Ms. Blasko drives about 600 miles a week. "I used to pay $40" for each fill-up, she said.

The amount of miles Americans drive has risen 9% between 2000 and 2005, according to the latest data from the Bureau of Transportation Statistics. In 2005, drivers put 2.76 trillion miles on their vehicles, including motorcycles, cars, pickup trucks and sport-utility vehicles, up about 1% from the previous year.

Ms. Blasko, who works as a crossing guard for the local school district, burns up the miles by running errands, carting around her kids and their friends, and attending meetings and volunteering at several nonprofit groups in adjacent cities. Some of her gasoline also goes toward shopping at garage sales for products to sell at an eBay business she owns with her husband.

Her husband, a service manager at a car dealership, also fills his tank twice a week, but he drives a more efficient car: a Ford Contour with no air conditioning. He commutes to Grapevine, a city about 25 miles southwest of Frisco. Together they earn $50,000 to $75,000 a year, depending on his commissions.

To save on gas when she can, Ms. Blasko has been filling up at Costco, where prices are cheaper. "I'm going to go hybrid as soon as I can afford it," she said. Still, her next automobile, like her Expedition, is likely to be a sport-utility vehicle. "I need the space," she said.

Ms. Blasko doesn't really see herself relocating to a close-in suburb that would require less driving. "I like my home," she said. "It's new. It's growing. We found a church."

--Ana Campoy

The Low-Income Worker

While her income puts her below the poverty line, Paula Hall sometimes feels rich. The Spokane, Wash., child-care provider earns less than $12,000 a year, while her husband is seeking disability after an accident at a steel mill left him unable to work. But that modest income is enough for food and rent for the two and their teenage daughter and for filling up the 1999 Honda Odyssey she bought from her father two years ago.

This winter will be a test, however. The heating-oil bill can mount quickly in their drafty, 700-square-foot rental home. "There is plastic on every single window. A blanket on the back door and the front door. And one to block drafts," said Mrs. Hall, 50. "I told my family, 'You all have bath robes and slippers...you will have to use them.'"

The thermostat, she said, is turned down to 65 degrees. Last winter, she purchased 122 gallons of heating oil at $3.28 a gallon, including taxes, for her 255-gallon heating tank. This year, she expects to pay more.

Energy costs are eating a greater share of Americans' spending. Analysts cite the effect of higher energy prices on lower-income Americans for disappointing sales results at some retailers.

Mrs. Hall remembers the last energy crunch, in the early 1980s, was different. Her husband worked in a manufacturing shop, and she had two jobs that she ran from inside her home. Six years ago, her husband was struck by a steel beam. While he gets some medical coverage from the state, he earns nothing currently.

Heating oil and gasoline have left things tight, but Mrs. Hall said there's little more cost-cutting she can do. She can't raise prices on the three children she cares for in her home because the state's fee isn't likely to rise. "Sometimes this stuff really gets us down," she said. "You just try to make the best of it."

--Robert Guy Matthews

The Auto Worker

Marsha Ponkey is in for a tough month because of the price of gasoline, and not just because of what it costs to fill up her Dodge Grand Caravan.

Ms. Ponkey, 59 years old, works at a Chrysler LLC plant in Detroit that makes axles for trucks and SUVs. Sales of those models have been declining for the past two years as drivers have downshifted into more fuel-efficient cars. Because of this sales slump, Ms. Ponkey, who has a base wage of $26.77 a hour, was laid of for a week at the end of November. For two weeks this month, the plant will lay off 700 workers. An indefinite layoff of about 300 workers is expected at the end of January.

Unemployment benefits make up for almost all of the wages she loses when she is laid off, but it is still tough. "It's crunch time," she said.

Ms. Ponkey not too long ago was making about $68,000 a year. Production cutbacks also cut her pay, first to a little over $50,000, and this year it looks like she will make around $48,000. "It really causes me to cut back on even the little things that I'd like to do," she said.

She is a member of the Guardian Angels, the citizen patrol group known for its red berets, and had to cut back on trips to New York to attend meetings. Several weeks ago, Ms. Ponkey postponed a weekend trip to a lakeside resort in northern Michigan. She has taken a part-time job as a phlebotomist at a hospital within walking distance of her two-floor home in Grosse Pointe, just northeast of Detroit.

Surging gasoline prices have transformed the U.S. auto industry. Hours worked in vehicle assembly at Chrysler fell 23% last year from five years ago, according to Harbour Consulting. Hours, as well as work forces, have also fallen in Chrysler powertrain and stamping facilities. A new contract between Chrysler and the United Auto Workers paves the way for cutting jobs and hiring lower-paid workers.

"Things are really going backwards," Ms. Ponkey said. Chrysler and other U.S. auto makers have "got to get the idea that with everything changing and things not going back to the way they were, people now need a car that's affordable and good on gas."

--Josée Valcourt

The Financial Analyst

Oil's rise has worked like rocket fuel for the career of 23-year-old Yale University graduate Adam Robinson.

The summer before his senior year, in 2005, he set off to Lehman Brothers in New York for an internship. He recalls being jealous when he learned a friend had been assigned to do stock research in the beverage and tobacco sector. He opened an envelope and read the words "natural gas." He thought, "What a dog."

Over 10 weeks, he researched new oil and gas platforms and pipelines in the Gulf of Mexico. One of the first inklings he got that the assignment contained the seeds of one of the best jobs on Wall Street came when hurricanes Katrina and Rita ravaged the Gulf Coast. The Yale senior continued to field calls from some investors and colleagues once he was back at college to ask details about platforms he had researched. "I realized just how important all this research I had done was for understanding global oil markets," he said.

Mr. Robinson became engrossed. The political science major wrote his senior thesis on resource nationalism in countries such as Russia and Iran and the politics of oil. He headed back to Lehman after graduating and joined as a research analyst on the commodities-trading desk under prominent oil analyst Edward Morse, who had just been named Lehman's chief energy economist.

Mr. Robinson and Lehman declined to disclose his compensation. But he is at the epicenter of a bull market, with Wall Street firms aggressively allocating resources to commodities. The job market for commodities traders is so hot, according to a study by Wall Street search firm Options Group, that top pay packages are five times larger than they were in 2002, and bonuses were estimated to be up 15% to 20% last year. Banks and securities firms hired 450 commodities traders last year through September, Options Group said, up 33% over the same period in 2006.

Mr. Robinson debates his positions with oil traders on the desk. He publishes under his own name, alongside Mr. Morse, and often fields questions from clients. "They'll ask me, 'Is this the top? The bottom?...What ideas can you bring to the table that we can make money on?'"

"Commodities are just so real and touch so many people all the time," Mr. Robinson said. Bitten by the oil bug, he plans in a few years -- when he's 25, perhaps -- to become a "dealmaker in the energy space" at Lehman or a private-equity firm or hedge fund.

--Ann Davis

The Small-Business Owner

Joseph Reggiannini may be in the heating-oil business, but he said the record price of crude is no windfall.

Mr. Reggiannini, 56 years old, is the proprietor of Reggie's Oil, a Quincy, Mass., heating oil delivery and heating and air-conditioning service company. With heating-oil prices reaching historic highs this winter, he said, many of his customers will be price shopping.

To keep his customers happy and loyal, he said, he hasn't passed along all of his increased expenses. As a result, his profit is down about 25% from a year ago, even though the average retail price of home heating oil has jumped 25%. He declined to disclose details. At the same time, he is worried that $30,000 in uncollected bills from his customers will increase.

This time of year, he said, Mr. Reggiannini puts in about 90 hours a week at the office. A typical day begins at 4 or 5 a.m. and ends at about 9 or 10 p.m.

"When a customer runs out of oil in the middle of the night, I've got to be there. That's how you'll keep your customer at these prices," he said.

Wholesale prices of home heating oil -- what Mr. Reggiannini must buy to fill his delivery truck -- have jumped 59% to $2.90 a barrel from $1.82 a year ago.

Current retail market prices in the New England area range from $3.35 to $3.89 a gallon. Mr. Reggiannini said he currently sells oil for $3.54 a gallon.

Only 7% of the country, or about 8.1 million households, heat their homes with oil. Most oil users -- 6.3 million homes -- are in the Northeast. The Energy Information Administration forecasts that it will cost those heating their homes with oil an average of $1,841 this winter, up 25.6% from a year ago. That compares with an average heating cost of $900, up 10.7% from last year, for natural-gas users.

The escalation in wholesale prices for heating oil comes as Mr. Reggianini's operating costs are also surging. The price of diesel fuel for his delivery trucks has risen more than 60% to $3.25 a gallon in the last 18 months. The health-insurance premiums he pays for six full-time employees have more than doubled to about $66,000 a year from four years ago, he said.

--Joseph Pereira