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MADELEINE BRAND, host:

From the studios of NPR West, this is DAY TO DAY. I'm Madeleine Brand.

ALEX CHADWICK, host:

I'm Alex Chadwick.

The price of oil, this could be the week it hits $100 a barrel. Prices actually are down a little today, but all week long NPR News is looking into the high cost of oil and the wider impact that's having.

BRAND: And we'll start today with gasoline. The average price nationwide is more than $3 a gallon, and that's the first time we've hit that level in about four months.

NPR's Scott Horsley has this report on what that means for consumers.

SCOTT HORSLEY: For most of the summer, consumers in America were insulated from the soaring cost of crude oil. Oil prices jumped by $20 a barrel between May and October, but at the corner gas station prices fell by about 45 cents a gallon. So if consumers weren't paying the higher oil prices, who was? Refiners. During the springtime, when supplies of gas were tight, retail prices were high and oil refiners enjoyed record profits. By early October, there was plenty of gas in the pipeline and that glut pushed refiners' profits and retail prices down. Analyst Lysle Brinker of the research firm John S. Herold says the drop in refinery profits more than offset the rising cost of crude.

Mr. LYSLE BRINKER (Analyst, John S. Herold): We hit sort of an air pocket in the market, so consumers enjoyed those prices at least easing off a little bit. We caught kind of a break there, but I think it's turning around now.

HORSLEY: Refiners are no longer acting as a shock absorber, so in the last few weeks the pain of higher crude prices has flowed directly from the oil well to the gas pump. A recent snapshot from the Energy Department showed gasoline prices had jumped 14 cents a gallon in a single week.

Ms. DIANE BARKER: What surprises me is when I go down the road, like yesterday, it was $3.11. And when I came back a half hour later, it was $3.16. It jumped in a half an hour. It just keeps going and going and going.

HORSLEY: Diane Barker is standing outside a 99 cent store in San Diego. She's always been thrifty, she says, but as the price of gasoline rises, she's even more conscious of what she spends.

Emerald Murphy, who works part-time, says she's cutback on junk food and on going out.

Ms. EMERALD MURPHY: I used to go clubbing every Friday with my girls. And now I can't go. I go every other Friday. Every other, other, other Friday. And when I get paid, it's gas, rent and cat food. I hope it goes down like soon, or I'm just going to ride my bike.

HORSLEY: Gasoline is still a fairly small part of the average household budget, but when that budget is tight, like Sam Moses's is, something has to give.

Mr. SAM MOSES: Especially people like us that's retired and on a fixed income, we don't have much choice. Things like going out for dinners, going to sporting events, that's what you cut out. They're things that you enjoy doing sometimes.

HORSLEY: Restaurant consultant Dennis Lombardi of WD Partners says $3 a gallon gasoline may force a lot of people to eat out less often. Mid-priced casual restaurants like Applebee's are more likely to feel the pinch than either high-end eateries or fast food joints.

Mr. DENNIS LOMBARDI (Restaurant Consultant, WD Partners): The reason for that is that is at the very high end, their customer base is a little bit more insulated from these kinds of price changes. And at the bottom end, which would be fast food, a lot of those meals aren't replaceable. In other words, it's either that or don't eat.

HORSLEY: Retailers are also bracing for the effects of high gasoline prices. Some are already offering big discounts in an effort to attract customers during what could be a weak holiday shopping season. Forecasters at Ernst and Young are expecting holiday sales to grow just four and a half percent this year, down from nearly five percent last year. The firm Jay McIntosh blames not only high gas prices but rising heating bills as well.

Mr. JAY McINTOSH (Ernst and Young): That generally is less controllable and hits in a bigger amount. So if we have a cold November, for example, and consumers get higher heating bills in December, that could hurt the holiday spending.

HORSLEY: Still, McIntosh expects an okay holiday season overall. He says high-end department stores and those catering to teenagers should see especially strong sales.

Mr. McINTOSH: Luxury retailers are going to continue to do well because their consumers just aren't as hit by economic factors as others. And teens are often spending other people's money so they're not as impacted from a spending perspective by some of these cost items.

HORSLEY: At the same time, Internet sales are expected to grow this year by 15 to 20 percent.

Scott Horsley, NPR News, San Diego.

CHADWICK: Some people are avoiding those high gas prices by converting their cars to run on vegetable oil. Sounds kind of intimidating. But Dave Kamaitis(ph) has done it twice. He lives here in Los Angeles. Dave, welcome to DAY TO DAY.

Mr. DAVE KAMAITIS: Hi. Thank you for having me.

CHADWICK: What was the first car that you converted and how did it work?

Mr. KAMAITIS: The first car that I converted was actually a, I think, a 1983 Volkswagen diesel van. It was sort of an old clunker van.

CHADWICK: Do you have to take the whole engine apart and reconstruct it or what do you do?

Mr. KAMAITIS: No. Actually, it's a little mystifying when you first learn about it, but once you do it, it becomes much clearer. You actually put in a secondary tank that holds the waste vegetable oil and you put in some heaters and some different fuel lines. And as a result, when you start up your car normally you let it run for about five minutes or so, till the vegetable oil is heated up and it's nice and thin and you flick a switch, and then you're running at vegetable oil, and then at the end you flick it back so you can kind of clear the system out. But it's really just - it's kind of plumbing, is an easy way to put it.

CHADWICK: And what's it running on before you switch over the vegetable oil?

Mr. KAMAITIS: This is only a diesel vehicle that could do this obviously, but it can run on either diesel or biodiesel, which will run in pretty much any diesel vehicle. I always chose to run biodiesel. But for purposes of making it easy for people to understand, I always call that the starter fuel because everybody sort of gets confused by which - which is it running on.

CHADWICK: Where do you get your fuel and what does it cost you?

Mr. KAMAITIS: Personally, I get my fuel from a catering service, which is a little bit easier, but I actually have gotten it from restaurants before. It's free. I mean, it's a waste product that they need to dispose of properly anyway. So you're actually saving them money by taking it, so you're doing them a favor.

CHADWICK: You talk to your friends and neighbors and co-workers about this.

Mr. KAMAITIS: Absolutely, and I've got signs all over the car that sort of - I get stopped at the lights all the time. And the best thing is I'll get the horn, someone beeping, and before I realize I haven't like made a wrong turn or something like that, I'll roll down the window and look at them and usually they'll say, is it really true? Is it really true? Because the license plate says, yes, it's a diesel and it's running on vegetable oil.

CHADWICK: When you're car is running, what does it smell like?

Mr. KAMAITIS: I always think it smells like an oil lamp, but occasionally it smells like French fries and, you know, there's different things you definitely don't want to do. If you're trying to lose weight, it might not be the best thing in the world.

(Soundbite of laughter)

CHADWICK: So you went through this experience and you can say, though you're not a mechanic...

Mr. KAMAITIS: No.

CHADWICK: ...somewhat mechanic - you can actually do this and it works out.

Mr. KAMAITIS: It does. There have been I think one or two studies that say that it will destroy your engine and there is some validity to that, but that said, I know people who have 60, 80, 100,000 miles running on grease. So if that's the case and their cars are still running strong and they've had no problems - and these people by their own admission are vigilant, they're type-A personalities about how they run their cars - it proves that it is possible and doable.

CHADWICK: I don't know exactly how much the government makes on gasoline taxes, but it's a lot of money.

Mr. KAMAITIS: It is, yeah.

CHADWICK: No one's making any tax money on what you're doing, and I wonder if, you know, suppose everyone on your block and then everybody in town said, hey, we're going to do what Dave did?

Mr. KAMAITIS: Yeah. There are number of problems with what I'm doing. I just think there are less problems than driving around on gasoline, and taxes are definitely one of them, because our taxes pay for the roads. They pay it for the upkeep, and that's important. That definitely is a concern and I think it's an honest one.

CHADWICK: Dave Kamaitis, driving on vegetable oil here in the Los Angeles traffic. Dave, thank you.

Mr. KAMAITIS: Hey, thank you very much. I appreciate it.

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