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A Bumpy Ride A Bumpy Ride

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RESTORATION CALLS: MARKETS

A Bumpy Ride

Bakersfield, Calif., sits in the middle of the largest oil-producing county in the U.S. But that offers no relief to residents tethered to an increasingly volatile and unpredictable global fuel market.

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Close to the margins: Keith Lutrel with the company’s fleet.(Michael Fagans)

BAKERSFIELD, Calif.—As February crept into March, it became harder for Kristi Lutrel to sleep through the night. She was waking up at 1 in the morning, her stomach in knots. She’d stare at the ceiling, rise, and check the computer, go through the numbers again, trying not to wake her husband, Mark. She didn’t want him to know how bad things were getting.

As the accountant for Lutrel Trucking, the family business started by Mark’s father in 1975, which she and Mark hope to leave to their son, Keith, Kristi Lutrel lives every day on the razor’s edge, managing fuel costs that account for about 40 percent of the company’s operating budget. In January—usually the month when oil prices are at their lowest—the numbers began, unexpectedly, to climb. Fast. The cost of fuel to haul a load of wheat about 165 miles from Bakersfield to Colton, Calif., went from $19,000 in January to $26,000 in February to $38,000 in March. Lutrel keeps 34 trucks on the road seven days a week, hauling grain to Los Angeles, fertilizer back to Bakersfield, cattle feed to Phoenix. For a small company with a profit margin of only 2 to 3 percent, those spikes in fuel costs—which quickly ate more than $100,000 from Lutrel’s bottom line—brought the company to the brink of catastrophe. The Lutrels added fuel surcharges to their customers’ fees, delayed payments, and took out loans, but they still couldn’t stay ahead of the rising prices. Their drivers were calling from the road in the middle of the night. Their gas-station credit cards had tapped out.

 

“I’m thinking, how are we going to make it?” Kristi Lutrel recalls, anxiety etched in her face. “I’m thinking, this is going to do us in.”

Kristi and Keith have the same blue-green eyes, and the same Excel spreadsheet minds. They can immediately calculate the difference that a 10-cent, or 12-cent, or (the case this spring) 40-cent per gallon change in the price of fuel makes in their company’s weekly, monthly, and yearly bottom line. But Keith, a 6-foot-2-inch hulk of a man who wears steel-toed boots and carries a shotgun in the back of his pickup and a tin of chewing tobacco in the pocket of his jeans, can also tell you the very worst part of watching fuel prices shoot up 80 cents in three months: “When you have to watch your mom cry because you can’t pay your bills.”

The Lutrels have weathered plenty of run-ups in fuel prices in the 37 years they’ve managed their business. Lately, however, the spikes and drops have come a lot more frequently, each time bringing the company closer to ruin. It was teetering in May, when, suddenly, prices started to fall.

 

“I didn’t think this time it was going to stop. It just kept going up, and up, and up. And then one day, it went down. But you have no way of knowing when that will happen. It will go back up again—but you don’t know when. There’s no way to plan,” she says.

Infographic

Lutrel’s business appears to be ideally located: Bakersfield lies in the southern tip of the San Joaquin Valley, the breadbasket of California. The company’s dusty yard of cobalt-blue trucks is set within a wide expanse of crops—hay, corn, cotton, potatoes, onions, and world-famous carrots—all of which need to be hauled: to bakeries in San Diego, to restaurants in San Francisco, to the port of Los Angeles.

On the other side of town are miles of fields producing the region’s other famous commodity: oil. Bakersfield sits over a literal lake of oil: the Kern River Reservoir, one of the biggest oil discoveries in history. The city is the seat of Kern County, the largest oil-producing county in the United States, which alone pumps out about 10 percent of the nation’s crude. Oil permeates the land, economy, and culture of Bakersfield. Drive through the west side of town, and the fields of black oil pumps, rocking back and forth against the dry earth and the blazing sky, stretch as far as the eye can see. The football team at Bakersfield High is the Drillers. Local dignitaries join the Petroleum Club.

 

But even though oil runs through its veins, Bakersfield is, surprisingly, home to the nation’s highest gasoline prices. It’s true that, nationwide, prices have dropped since their peak this spring. But although the national average price for a gallon of regular gasoline is about  $3.50 a gallon, at the Chevron station at the intersection of Route 119 and Interstate 5, it’s $4.79. While you fill your tank—a painful $78 for a Ford Crown Vic—you can look across the highway to yet another field of oil rigs.

“We live here in a town that pumps it. It makes you angry,” Lutrel says. “But you’re held hostage. There’s nothing you can do.”

“I don’t believe in government policy as punishment.”—Rep. Kevin McCarthy, House majority whip

Perhaps no other place in the United States so vividly illustrates the fact that, no matter how much oil is produced locally, the economic fate of the nation, like that of the Lutrels, is shackled to the rise and fall of oil prices set by a global market far beyond the borders of any oil field. It doesn’t matter whether the oil is pumped out of the ground in Bakersfield or Saudi Arabia, or out of the sea five miles off the coast of Brazil. It all goes to the same place—a single, international ocean of oil, where price is determined by, above all, global supply and demand, where the output of the massive Kern River Reservoir is not much more than a drop.

This article appears in the June 30, 2012 edition of National Journal Magazine.

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