How will Rising Petroleum Prices Affect the Economy in 2022?
Do you ever wonder how or what makes your food hot when you cook it? Or what makes your house warm in the wintertime? It’s petroleum, and it’s something that we use regularly and affects our economy in more ways than one.
What is petroleum? Petroleum is crude oil and other liquids produced from fossil fuels that are refined into petroleum products.
According to Bloomberg, oil prices are currently above $110 a barrel after surging as high as $130 earlier this month. The average price of U.S. gas has surpassed $4 a gallon and is near $6 in the most expensive state of California.
With petroleum prices rising, it increases inflation and economic growth because it influences the cost of production and manufacturing across the United States.
Why Are Gas Prices So High Right Now?
There are a few factors why gas prices are so high right now. The biggest factor has to do with supply and demand. Right now, the current demand for gas exceeds the supply. Replenishing the gas supply takes a bit of time, which in turn drives up gas prices. The demand for gas started to increase after COVID restrictions were lifted in 2021. Until that time petroleum production had nearly ground to a halt.
Another factor has to do with the Russian invasion of Ukraine. Gas prices were slowly going up shortly before Russian decided to invade Ukraine. Once the United States banned Russian oil imports in March of 2022, gas prices shoot up even more. This is because demand is still high and now one of the United States’ international suppliers is no longer available to supply oil products. America produces about 40% of its crude oil and gets the rest mostly from Canada, Mexico, and Saudi Arabia. But Roughly 8% of U.S imports of crude oil and refined products also came from Russia last year, according to NBC News.
How Do Petroleum Prices Affect Certain Industries?
Industrialized Agriculture
Industrialized food systems depend on oil for fueling farm machinery, producing pesticides, and transporting goods. Biofuel productions link oil prices to food prices.
With the increasing price of petroleum, food systems are likely to adapt to an oil-constrained future in four ways.
- Reduce oil in food production
- Increase food system energy efficiency and renewable energy
- Change food consumption patterns
- Reduce transportation distance which raises the cost of producing food
Health Care Industry
The health care industry is impacted by the higher price of petroleum because nearly all pharmaceuticals, raw materials, and reagents are petrochemical-based. So for example, the cost of burn ointment, cold, and allergy pills has increased. In addition, since gas prices are higher, it costs more money to transport people by ambulance or helicopter.
Plastic Products
There are several plastic products you may even have in your home that you may have not realized are made with petroleum that now cost more money as well. Such as acrylics, containers, plastic trays, eyeglasses, and even some clothing made from nylon.
How Will the Recent Surge Affect the Housing Market?
The recent surge affects building materials for on-site-built homes as well as manufactured homes and modular homes because home building materials are delivered with big rigs using diesel fuel. Diesel fuel is on average $1.00 per gallon more than gasoline. In fact, diesel fuel in texas hit a record high of $5.25 on May 11, 2022, according to AAA. This is significant as both factories that build Oak Creek Homes are located in Texas. Oak Creek Homes has a plant in Ft. Worth and Lancaster.
Oil is also part of many building materials and furnishings. This includes asphalt roof shingles, plywood, shag carpet, plumbing parts, glues, adhesives flooring, wall covering, bathtubs, bottom board, and roof underlayment. So, with high petroleum costs used for not only making home building materials but also used to transport them, it’s driving up the cost for consumers to buy homes.
For Oak Creek Homes it’s no different. We’ve seen no shortage of petroleum-based home building products, they are just more expensive to buy than when oil prices were cheaper. Mike Terrain, Vice President of Purchasing for Oak Creek Homes, confirmed this, “We all feel the pinch at the pump so imagine how worse it is for truckers paying $1.00 more, and then those costs are passed on to us. Many of our materials at Oak Creek Homes do not come directly from the manufacturer so we have multiple transportation costs built into our costs which have risen every month this year.”
Over the past year, on average, fuel costs are up 38% and home prices are up 19%.
Summary
So, in summary, the surge in oil prices is costing more money to make and transport products in businesses across the United States that are related to agriculture, health care, plastic products, and homebuilding.
Oak Creek Homes makes the effort to stay on top of what is going on in the economy and to stay prepared for changes in the home building industry. Even with the price of petroleum rising, we have more than enough supplies to build your affordable luxury home in as little as 2 months! Oak Creek Homes offers 100+ floorplans to choose from. We have manufactured home and modular home floorplans for every style, taste, and budget. Don’t be priced out of the current housing market. Mortgage rates and home prices will only continue to climb! Why wait? Enjoy affordable luxury now!
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Contact us today if you have more questions or would like to tour our homes in person.
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Manufactured Home Builder Oak Creek Homes has been building affordable luxury heavy homes for over 50-years! Find your nearest Oak Creek Home Center.
