Joseph P. Fried. "High Cost of Oil Finds Countless Ways Into Everyday Lives, and Many Pocketbooks," New York Times.
Feb 20, 2000.
In recent weeks, the jump in fuel oil and gasoline prices has emerged as a potent political issue. Homeowners who rely on oil heat have had to deal with surprisingly high bills this winter, but the impact is more widespread, rippling throughout the economy in many ways. And, as with all economic dislocations, some have actually benefited from the situation.
Higher transportation costs aren't alone in making it more expensive for Edward Mafoud to produce and ship pita bread from Brooklyn. Petroleum-based plastic bags have also become costlier.
Credit: Suzanne DeChillo/The New York Times
Amid the aroma of pita breads baking at the rate of 11,000 an hour, Edward Mafoud stood on the cavernous floor of Damascus Bakeries in Brooklyn and explained how the steeply rising oil prices had taken a significant bite out of his bakery's already slim profit margin.
The cost of producing and shipping his pitas and other Middle Eastern breads has gone up by about $40,000 in the last 12 months, he said, not only because of higher transportation costs, but also because of the rising price of plastic packaging bags -- a petroleum-based product he uses by the millions each year.
Although $40,000 may seem relatively little for a company with about $5 million a year in gross revenues, it is important, Mr. Mafoud said, because "in the bread industry we work with small profit margins" on each item.
"If your profitability margins are basically running 3 percent and you chop off 1 percent, it doesn't leave you that much to operate with," he said. Less money is left to upgrade equipment, expand production or merely remain competitive.
"We're not going to go out of business overnight," he said. But if oil prices remain high or increase still more, and if the costs of ingredients and other items also rise significantly, he said, the squeeze could become more serious.
About 80 percent of the bread made by Damascus, a major pita producer, is distributed nationally, carried by independent truckers who in recent months have added fuel surcharges to the bakery's bills.
Mr. Mafoud, 39, is part of the third generation of his family to operate the 70-year-old bakery at 56 Gold Street, in the Vinegar Hill area of Brooklyn.
As the bakery's president, he was already considering whether to raise prices, a step he said he was reluctant to take, because it would mean risking the loss of some wholesalers and retailers. An increase of 2 or 3 cents on a four-pita package -- to compensate for the nearly 10 percent rise in the cost of plastic bags and the 2 percent to 3 percent truckers' fuel surcharges -- could lead distributors and retailers to say, "No, we'll buy from your competitors," he said.
Taking a Toll on Apartments
The spike in oil prices is punching holes in the finances of apartment buildings across the city, from small walk-ups to the giant Co-op City complex in the Bronx.
"It's going to bust a lot of budgets -- it already has," said Jordi Reyes-Montblanc, president of the Housing Development Fund Corporation Coalition, which helps limited-income tenants take over and run buildings whose owners default on taxes. To pay soaring oil bills, some co-ops may impose assessments or raise maintenance fees, he said.
"Our co-ops operate on a very small margin, and this was totally unexpected. Many buildings can withstand the pressure for a limited time, but with others, it's like living from paycheck to paycheck, and this can break you."
At a 24-unit building he manages on West 134th Street in Hamilton Heights, Mr. Reyes-Montblanc said: "On Jan. 20, we got an 1,800-gallon delivery at $1 a gallon. On Feb. 5 we got another delivery that cost $3,600," or $2 a gallon, "and in the next few days we may have to order again."
At New York's biggest housing complex, Co-op City, the surge in oil prices hit home at an especially inopportune moment.
Just getting oil -- regardless of price -- proved hard last month. "One guy had trucks and no oil; another guy had oil and no trucks," said Gary E. Friedland, the executive vice president of Marion Scott Real Estate, which manages the complex.
For many buildings, oil costs have been more of an annoyance than a crisis. "Many of our members are heating with gas, or they have a level billing plan and won't get hit for an adjustment until later on," and others are dipping into reserve funds, said Mary Ann Rothman, executive director of the Council of New York Cooperatives and Condominiums.
But not all buildings have a cushion. Amy Rosado, who helps run a tenant-owned building on Shakespeare Avenue in the Bronx, said it could pay only half the $6,000 bill for its last oil delivery. The supplier agreed to extend credit for the rest.
"There's a lot of yelling and screaming, because this is basically a doubling of oil prices, and that's pretty significant," said Jack Freund, executive vice president of the city's biggest landlords' group, the Rent Stabilization Association.
Big Tanks, Big Bills
Herb Castro, a stay-at-home father who lives in Manhattan, used to fill his minivan's tank once or twice a week. Now, he says, he can afford only $10 worth of gas three or four times a week.
Credit: Angel Franco/The New York Times
The sport utility vehicle has surged in popularity in part because of its size -- taller than a speeding soccer mom, but sometimes more hungry for gas than two compact cars. That's not much of a problem when gas prices are low.
Now, however, drivers of sport utility vehicles and minivans are rolling their eyes as they spend as much as $50 to fill their large tanks.
Herb Castro, a stay-at-home father from Manhattan's Lower East Side, said he used to fill the tank of his minivan, a 1996 Plymouth Voyager, once or twice a week. Now, he can afford to buy only $10 worth of gas three or four times a week. When he can, he buys gas in Brooklyn to save a few pennies.
Nevertheless, he could not consider a smaller car, he said: "I have three children and my wife. Anything smaller would drive me crazy."
Mr. Castro was buying gas Thursday morning at the Amoco station on Fourth Avenue in Brooklyn, where prices ranged from $1.51 to $1.65 a gallon, generally less than in Manhattan. At a Merit station nearby, where gas was selling for a few cents less, Edward Bell of Flatbush, a mechanic for U-Haul, was filling up a rental truck.
He said he has cut down on driving because of the jump in gas prices. "I don't go out of state too much anymore," he said.
To a person, drivers of sport utility vehicles said that while they were disturbed at the jump in gasoline prices, they would remain true to their vehicles.
"I think they should lower the price. If you have to buy a particular car for gas prices, that's ridiculous," said John Brutus, who travels from his home in Virginia to Kennedy International Airport and on to Buffalo to do maintenance on planes. He said it costs him $21 to fill up his 1987 Pathfinder, but because he has four children, he wouldn't be able to use a smaller car.
A Cooperative Solution
Marion Reinhardt of Rutherford, N.J., works hard to make her 110-year-old house more energy efficient and her heating bills affordable. A few weeks ago, she put weatherstripping around her back door.
When she goes to work, she lowers the thermostat.
But it was the recent rise in gasoline prices that made her realize that no matter what she did to conserve, it was going to cost more to heat her home this season. "I was driving to work the other day, and I passed a gas station that was selling gasoline for $1.38 a gallon, and I was so astounded at the increase," said Ms. Reinhardt, who is 52. "I went home and called my oil dealer, and they were going to charge me $1.60 or $1.80 per gallon," she said. "I couldn't believe it."
For years, Ms. Reindhardt has been hearing of an oil cooperative from her friends and neighbors.
A few days ago, when she realized how oil prices had risen, she called the New Jersey Citizen Oil Group, a nonprofit group that buys oil in bulk and sells it at a discount to its 6,000 members. Through the cooperative, Ms. Reindhardt is paying 50 cents a gallon.
Kendall Miller, the organization's director, said the cooperative sells about nine million gallons a year to its members, saving them about $1.5 million.
Prices for the oil vary, but are capped at 99 cents a gallon.
Ms. Reinhardt said the winter would be hard on people with older homes, like hers, who are doing all they can to conserve.
"Last month it was pretty cold," she said. "And winter's not over yet. I needed to do something."
Cashing In on an Alternative
As the new year opened to mild weather, Mike Ruff struggled to drum up business for his Brooklyn plumbing and heating installation company. Then serendipity struck: the recent increase in oil prices, coupled with an onslaught of bone-chilling temperatures, ushered a wave of customers his way.
Mr. Ruff and his company, KeySpan Energy Solutions, are among the few who have profited from the increase in oil prices.
As more and more homeowners convert from oil to natural gas, some plumbing companies are finding that what began as a sluggish winter may turn out to be a boom season. "Since the last week or two of January, we've seen a big jump in the number of customers," Mr. Ruff said.
Mr. Ruff said that business has increased by about 60 percent over the same time last year. In an average year, conversions to gas heat account for about 15 percent of the company's total gross revenues, he said.
Mr. Ruff's company is a subsidiary of KeySpan Energy, which, along with Consolidated Edison, provides gas to homes in New York.
Bob Mahony, a spokesman for the parent company, said that while oil prices were hovering about $2 per gallon, an equivalent amount of natural gas cost about $1.15. Converting from oil to gas heating usually runs $3,500 to $4,500, Mr. Ruff said. And if a home does not have a gas line, it has to be installed by the utility.
Of course, those homeowners who have filled up their standard 275-gallon oil tanks will likely hold off switching, said Kenneth Lukaszewski, one of the owners of Komfort Plumbing & Heating, based in Brooklyn. He said he already has conversion jobs scheduled for March and April, when many people will have used up their oil.
"Business is good right now," Mr. Ruff said. "We just don't know how long the oil prices will stay up. And in this business, you're always at the mercy of the elements."