You Will Never Know
Sharon June 22nd, 2009
The area I live in, the Northeast US, has a particularly acute sensitivity to oil prices, because 82 percent of the households heating entirely or partially with oil are in this region. Natural gas lines simply don’t go out to many exurban or rural areas in the Northeast, so in Maine, Vermont, New Hampshire and Northern New York where I live, a disproportionate percentage of the population heats their homes with oil.
Last summer, when Eric and I were driving through New York on a short vacation, the subject that consumed most of the people we met in small cities and towns was this – how will we get through the winter. Winter hunger is already a problem in this region – while food security is generally better than the rest of the country, hunger proliferates in the winter when poor families have to put hundreds of their hard-won dollars towards energy bills simply to keep warm.
Last winter was not an especially painful one in the Northeast – somewhat insulated from the economic crisis, the timing of the oil price collapse was perfect, if by perfect one means “causes the least immediate harm and of course, undercuts all incentives to shift to better solutions” – the winter heat crisis did not, in fact, materialize.
Now, we are back to summer, and seeing gasoline prices sneaking up above $3 gallon in some places, while heating oil costs are above $4. No worries, those dependent on oil can wait, after all, summer just started and winter is a long way away. But I have begun to hear some worry again – what if oil prices continue to rise.? After all, even here, job losses are beginning to accumulate, and wages to be cut.
One of the things I’ve been telling people when I give talks lately is this – peak energy’s major feature is volatility – it was a mistake for anyone to call it ‘the end of cheap oil’ or to imply that we’d never seen price collapses, and I think the framing of this issue in those terms has hurt the peak oil cause in the shorter term. Instead, we need to make apparent the full ramifications of price volatility in our work – that is, you will never know, from one season or month or year to the next, how much of your income you will pour into gasoline, heat and food.
After all, it is not just energy prices that are on the rise at the moment – so are food prices, which are tied to many of the factors of the long emergency in complex ways. In 2008, average food costs rose 5.5 percent. Retail food prices rose 9% in the past 3 months alone, including slightly over 2 percent in May. That is, it isn’t just your perception that things are getting tight at the supermarket.
There is little doubt that we are now in a deflationary period – but it is important to remember that in an overall contraction of the money supply (yes, yes, the Fed is printing – but credit is contracting so fast it is overwhelming this), not all prices are going to fall. Even if they do, the magic of deflation is such that even if food prices fall, your income falls faster, stripping you of purchasing power. The volatility works two ways – it leaves those who need to eat or drive panicky, vulnerable, unable to plan for the future. And it wildly undermines producers – we saw this in the dairy industry this year, when the bottom fell out of milk prices and dairy farmers slaughtered they herds en masse in many places. The lingering high cost of last year’s feed, grown with fertilizers bought during the oil boom meant that farmers couldn’t afford to keep feeding their dairy cows, with milk prices dropping. Later, this translated to price increases for consumers.
Uncertainty is the order of the day. You will not know what your heating and cooling will cost you next year. You will not know if it makes sense to stay put or look for a job closer to work – will the job stay? Gas prices rise? You will not know whether food prices will go up or down, with climate change and input prices – only that it gets harder most years to keep food on the table. We have had a period of unprecedented stability in the last decades – mostly declining food and energy costs have allowed us to live as we have. That’s changed. Now, we’ll never know.
Sharon
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Yeah, I’m keeping a close eye on the oil tank and I’ll be refilling it as soon as it gets even half-empty, while the prices are still reasonable. I really wish we had electric or gas heat, so we could pay it month by month rather than it being an extra month’s rent all at once.
Sharon:
I love your passion and compassion… but most of all… (and I am embarrassed to admit this)
I love the way you write!
But back to it…
My family was in the heating oil delivery business just outside NYC when I was growing up. Very mom & pop – my Dad worked out of the house. He had a single delivery truck. I was 13 or so at the time, but I remember a winter in early to mid 1970’s when the price of Oil was so high many of his customers just could not pay, or were running out because they were trying to get through till spring, pipes freezing, etc… tough stuff.
I think that your region could certainly see a winter like that again – with circumstances being what they are in the economy – if oil prices were to surge this winter season.
Perhaps folks would do well to insulate and make adjustments now. Frozen pipes are expensive, and the ability of the delivery companies to extend credit might be constrained this year.
I’m with Greg in terms of making adjustments now. I don’t heat with oil, but I’m trying not to forget through the summer about preparing for winter, and especially finding efficient, low-energy, and maybe even low-cost ways to keep warm. For me, that involves picking up as much warm clothing and bedding as I can now (bedding is excellent for wrapping up in, reading under, and hanging against doors, wals, and windows to keep heat in), and trying to find ways to insulate me and my apartment a bit better. I know this isn’t a perfect solution and not necessarily the most practical for those in big freestanding houses. I also know that for some people oil will still be necessary. But now is not a bad time to start thinking outside the box and stocking up on things that could help to make the winter a bit warmer.
I’m in with the insulating to reduce need for fuel year-round.
I’m working on making ‘duvets’ for some of my extra comforters and blankets. Usually I just do flat ones (like a pillowcase with ties on the open end), but I may try to do some square ones this year so that they’re stackable against outside walls. Useful year-round, since in the winter one could fill them with summer clothing, beach towels, clothing that one’s kids haven’t grown into yet, etc.
Shelving or milk crates are handy too — stack them against the walls and fill them with clothing or other textiles. If stacking milk crates though, use some twist ties or other wire/string to tie them to each other, both top/bottom and side to side, for stability.
The one thing that drives me nuts about our livingroom is that the radiator is this long low thing that runs along the bottom of three walls (a bay window area), so I can’t really put anything in front of them. And I need two of the three windows in the winter for my plants… I’m going to have to work on setting things up so that I can have the plants there and still be able to reach the windows to open and close heavy curtains. I’m only 5′3″, so even a shallow table makes it hard for me to reach the wall and actually do something.
At least we’re able to keep the heat off to two of the rooms!
When my family lived in suburban Philadelphia from 1973-1980, our house was heated with oil. At least at that time many people in the mid-Atlantic states had oil heating. I remember waking up in the middle of the night from cold a few times when the oil tank emptied. I don’t think it was lack of money, just an incorrect guess on my parents’ part on how soon the tank would run dry (I was in high school and college during those years).
Oil was more common in the Midwest at one point, too. Our current house had oil heat after St. Louis passed laws that forced the end of coal as a heat source. Air pollution from coal stoves had killed people in the 1900s, leading to banning of the use of coal stoves. Our house had coal heating when it was built (1928), then went to oil heating after coal became illegal. The woman we bought the house from told us she switched from oil to natural gas heating during the 1970s, when oil got very expensive.
We’ve already insulated and sealed the house as well as can be done. I need to add curtains or blinds to the windows lacking them, and glass in the south-facing porch to add some inexpensive solar heating. So far we’ve been able to keep ahead of rising costs through conservation measures, but I suspect, for the reasons you mentioned, that at some point we will no longer be able to keep ahead of them. We already have hats and blankets, probably need to get more long underwear … and be ready to live in the basement in the summer, when electricity goes up to the point when AC is longer a reasonable possibility, even for the little we use it (anywhere from 3 to 6 weeks during the summer depending on the weather).
Sharon:
The UPS truck has just delivered my order from Amazon…
and with it a copy of:
Depletion and Abundance, Life on the New Home front.
I asked my wife to read your book for my Father’s Day present.
I look forward to reading it as well.
I don’t understand what numbers people are looking at when they say that we are in this massive deflationary period.
When I look at US consumer credit outstanding, it’s gone down but it’s still above 2007 levels.
http://www.federalreserve.gov/releases/g19/Current/
Mortgage debt is also above 2007 levels.
http://www.federalreserve.gov/econresdata/releases/mortoutstand/mortoutstand20090331.htm
When I look at the CPI numbers published by Shadowstats, prices are still inflating. They are decreasing in their rate of year over year increase but are still positive.
http://www.shadowstats.com/charts_republish#cpi
All of the US money supply growth numbers are also positively increasing (M1, M2, M3)
http://www.shadowstats.com/charts_republish#m3
While all of the numbers are tending to decrease the rate of increase, they are all still increasing. I understand that deflation may yet occur but I don’t see the evidence yet.
Can you point me to data that better indicates deflation ??
Indeed. Most people in my part of PA also heat with oil. I filled up our tank at the end of April, when oil seemed reasonably priced and I could figure on very low consumption until the fall months. But with only one small tank, it’s scant reassurance. I’m working on air-sealing around our doors and windows, and we’re waiting on an estimate for some insulation and professional air-sealing for our basement.
It’s pretty scary watching that ball skitter over that roulette wheel. Long term we’re considering passive solar thermal. We don’t have ideal insolation here, but we keep the house pretty cool in winter anyway.
Your comments on dairy farming were off the mark. The main reason for the price decline is that we dairy farmers were relying on export growth continue a good short run in prices. When the global economy froze up our prices took a nosedive because the small amount of exports amounted to a surplus of three to four percent which results in a 30 to 40 percent drop in price. This happened in the past with a small drop in domestic consumption.
I know of no dairy farmer in our area that sold their cows for slaughter. Any sales were the whole herd for milking by someone else because the price they received was at least double the beef price for their cows.
We have no oil heat in this area, as far as I know, mostly it’s natural gas. That’s got volatility built into it as well, along with the risk of a sudden drop in availability … and so we’re preparing as best we can for the inevitable spike in natural gas prices (for us, that means wood heat, as wood is plentiful and we can get it ourselves for little or no cost).
For those preparing for cold weather, I cannot overstate the value of bubblewrap on the windows! We tried it last winter (we have huge windows on the south side, for passive solar gain, which is awesome … until the sun goes down, which is around 4 pm here in the depths of winter). I was absolutely amazed at the improvement in heat retention just by doing that simple thing. (Hat tip to SolarGary of builditsolar.com!). I was able to scavenge bubble wrap from the dumpster at work (yes, I shamelessly dove in to pull out that pile of plastic!), and got really long 2′ wide rolls of it at Staples for $12, so it was very affordable.
As others have said, the best way to deal with the volatility of heating fuel prices is to simply do without said heating fuels as much as possible.
That said, and for what it’s worth (probably not much), I think oil in the short run is setting up for another fall back – possibly into the 40s. I say this because inventories are still building, demand is down even more than supply seems to be at the moment, and the economy is still reeling from the earlier shocks. As well, I think the greater stock market’s current bounce has about petered out and for the moment, oil traders have been looking at stocks as some kind of surrogate economic indicator. On the other hand, oil has been used lately as a safe haven from a declining dollar too.
I’m still sitting in mild amazement too at learning that income tax revenues in the states are off around 30% for the first four months of 2009 too, courtesy of Greg’s blog. http://online.wsj.com/public/resources/documents/2009-06-18-State_Revenue_Flash.pdf That speaks volumes about this economy’s ill-health and its current, sagging demand for oil, not that the latter has to last all that long, though I suppose.
What’s up for oil prices in the longer run? Well, I’m glad I have a bike pulling a trailer and that I heat (a well-insulated house) with wood is all I can say to that.
Good luck everybody.
Hi Jerry – Apologies if I’ve made a mistake – I was relying on another person’s report, and didn’t do sufficient due diligence. My error.
I agree with all of you that insulation is the answer here – and I love bubblewrap. We actually made small light wooden frames with bubble wrap stapled in, so we could reuse it, and it has made a huge difference. I guess what concerns me is that volatility and credit decline make it hard for many families to reinsulate – I’m hoping that the stimulus funds for this project are sufficient to make a difference, although I gather there are some issues, including the proportional shift of more of that money to the south for political reasons.
Sharon
Sharon, I have a little contribution to make to this thread- re bubble-wrap- over on my blog (too long for a comment).
http://littlebloginthebigwoods.blogspot.com/2009/06/beating-heat-and-cold.html