Will Middle East Unrest Wind up Costing Walnut Creek More Money in Fuel Costs?

Political unrest in Libya and other Middle Eastern countries pushed oil prices to more than $100 a barrel last week, and the price of regular unleaded gasoline to $3.95 at one Walnut Creek gas station Friday.

AAA's Daily Fuel Gauge Report says that the national average price for a gallon of regular gasoline has jumped nearly 38 cents since last month. In the Oakland metropolitan area, that monthly spike was nearly 47 cents. The Energy Information Administration said in a report last week that such steep increases in fuel prices have not been seen since Hurricane Katrina.

On NBC's "Meet the Press" on Sunday, White House Chief of Staff Bill Daley said: "There's no question that the increase in oil and the uncertainty in the Middle East has caused great uncertainty in the markets. ... The president is extremely concerned about this." He was responding to a question from moderator David Gregory about whether rising fuel prices will undermine progress in the economy's recovery —including the nation's jobless rate falling below 9 percent in January. 

The uncertainty in oil prices and Middle East politics is being felt in many sectors of the economy, analysts say. That's certainly true in a municipal government such as Walnut Creek. 

While the city deals with complex factors affecting its financial future—from the state budget to a struggling business climate—it also must respond to the impact of rising fuel prices.

The city has to ask the same question political leaders, economists and energy-industry analysts are asking nationally and around the world: "What does a $100 barrel of oil mean to economic recovery?"

That's the big-picture question. Meanwhile, the city, like the rest of us, is having to fork over more money to fill its gas tanks.  

The city operates a fleet of 165 vehicles, from police patrol cars to pickups used by Parks and Community Services workers, to equipment such as lawn mowers used by maintenance crews. "We've seen a 26 percent increase in the price of fuel and lubricants," said Rich Payne, public services manager.

That increase occurred between the 2006-08 budget, for which the city allocated $562,790 for fuel costs, and the 2010-12 budget, with about $760,000 set aside, Payne said. "We're trying to project for 2011-12." 

The city fills its cars and trucks at its corporation yard, near the Lawrence Way entrance to northbound Interstate 680.

The city works with three wholesale suppliers, which sell to other municipalities, too. Every few weeks, Payne's department looks at which supplier is offering the best price to ensure that Walnut Creek is getting the same deals as other cities. Walnut Creek also has vehicles that use alternative energy, including hybrid vehicles and vehicles that run on biofuel. 

Rising gas prices also have pushed up costs for other products the city uses in street maintenance and in the landscaping of public parks and around city buildings.  

Payne said the city was paying about $56 for a ton of asphalt—used in street repair—in 2006; the price now is $65 a ton. And Parks and Community Services supervisors have told Payne that they are paying 25 percent more for fertilizer than in 2006. 

Like other analysts, Payne does not see the revolutions in Egypt, Libya and other north Africa and Middle East countries as the sole cause for the spike in gas prices. He says fuel costs have been rising steadily since 2007. Payne noted that in 2007, he had to go to the City Council and ask for an extra $140,000 to cover fuel costs. 

The projections for fuel costs in 2011 and 2012 should be OK if gas prices don't rise above $4.50 or $5 a gallon, Payne said. But if  they head higher than that, he said he might have to ask the City Council for more money. 

"There are good reasons to worry," says an article in the latest issue of  The Economist. As a delusional Muammar Gadhafi denies the turmoil in his nation, his country's output of oil has halved. The spread of unrest across the region threatens to disrupt the supply and hike gas costs for consumers, including in American cities, according to The Economist.

That leaves a big question mark.

Payne said that Walnut Creek has to play a wait-and-see game about fuel costs for the coming year: "No one can anticipate what is going to happen right now."