Near-record crude oil prices could be trouble for construction industry

Already high crude oil prices surged from $50 per barrel to more than $55 in recent weeks, with some forecasts for even higher, record-setting increases during summer months – which could mean trouble for the petroleum-reliant construction industry.

The price of crude oil, which affects contractors through the costs of fuel, asphalt and surcharges on delivery costs, came within a few cents on March 9 of last fall’s record New York Mercantile Exchange closing price of $55.17 per barrel before retreating the following day.

A March 11 report lists the United States’ price per barrel of oil at $45.46.

Associated General Contractors of America chief economist Ken Simonson said he expects oil prices to continue to be volatile for the foreseeable future. Because of these market fluctuations, he said the construction industry could see cost swings on many fronts.

“[Increased] diesel prices hits construction every time they turn on the bulldozer or start the truck,” Simonson said. “The impact on construction and equipment manufacturers is on multiple levels.”

Rising oil prices translate into rising material costs used in the construction and construction equipment industries. Any material using petroleum – roofing, PVC, insulation – or high heat for production – steel, aluminum, cement – will likely see a cost increase.

Retail diesel fuel prices gained nearly 3 cents this week to $2.19 per gallon, according to the U.S. Energy Department’s Energy Information Administration. This pushed prices up throughout the country, with the lower Atlantic seeing the largest regional increase of 3.5 cents to $2.10 per gallon.

Diesel fuel prices are up more than 50 cents per gallon from this time last year.

Dave Bauer, senior vice president of government relations for the American Road and Transportation Builders Association, said there is little industry groups can do in regard to rising fuel prices.

But last year’s strengthening economy and sustained public travel in the face of record oil prices suggests little overall impact on the consumer.

Some market analysts have suggested crude oil could surpass $60 per barrel in coming weeks, and remain at those levels because of growing global demand and the limited ability of producers to easily expand production.

Simonson said while he thinks average oil prices for this year will be higher than in 2004, the construction industry shouldn’t be concerned about additional price increases.

“I don’t have a feeling it’s going to get any higher than it is right now,” he said.

Patrick Beeson can be contacted at pbeeson@randallpub.com.