Saturday, September 03, 2005

Pumps run dry as US motorists rush to top off tanks :: Houston Chronicle
Expectations shift demand

In the aftermath of Hurricane Katrina consumers quite rationally expected that prices at the pump would rise. The hurricane disrupted crude oil extraction from offshore oil rigs and refining and storage facilities concentrated in the affected region were damaged and destroyed. Consumers naturally figured that prices for gas would be higher in the coming days and they rushed out and topped off their tanks.

In the language of economics, the expectation of a higher price for gasoline in the future increased demand today. A car's gas tank serves as storage for gasoline you can consume in the future.

As this response played itself across the country there was a variety of experiences. Pump prices did generally begin to rise immediately, but stations that were slow to raise their price ran out and local shortages where all retailers ran out did occur. Retailers who were well stocked for a typical day's business sold more yesterday than would have on a typical day. Distribution delivery schedules to retailers no longer matched the quantity being sold.

At the same time, some retail outlets raised prices so much that they subsequently lowered them.

Moving to a new equilibrium can be messy as price adjustments are made towards the new level that will balance quantity demanded with quantity supplied.

Government only exacerbates the problem with so-called price gouging laws that peg the retail price to the wholesale price of gas. Consumers aren't stupid; they rationally panic. When they see today's price is fixed but tomorrow's price will be higher (because the wholesale price is increasing) they rush out and buy all they can today. The result is a shortage where all retailers run out. Consumer who didn't panic wish they had.

Some quotes from the Houston Chronicle article:
The increases followed price spikes on wholesale and futures markets Tuesday after the hurricane knocked off-line refineries and pipeline links along the Gulf Coast that provide about a third of the country's gasoline supplies. Concerns are now mounting over limited supplies of gasoline, including the possible return of long lines and scarcity reminiscent of the 1970s gas crisis.* . . .

"We don't have a shortage of gasoline. We have a delivery problem,'' said Bill Weatherspoon, executive director of the North Carolina Petroleum Council, which represents major retailers that get gasoline from the pipelines. . . .

Brian Scapecchi of Foley, Ala., saw the long lines at gas stations Wednesday and opted to return to a 24-hour station in the middle of the night in hopes the lines would be shorter. He guessed right, and was able to fill up at 12:40 a.m. Thursday.

"I'm sure it will be taken care of in a couple of weeks, but I'm not taking any trips,'' said Scapecchi, vowing to converse gas and avoid going anywhere over the Labor Day weekend.
Although police in Charlotte, N.C., reported prior to daybreak that only 30 of Mecklenburg County's 230 fueling stations were out of gas, that number appeared to grow considerably Thursday as drivers continued to crowd the open stations, fearing a shortage. . . .

the Environmental Protection Agency said it would temporarily allow gasoline retailers nationwide to sell fuel that does not meet stringent summer air-quality standards.
Several gas stations in the Milwaukee area ran out of gas for several hours at the time. The outages were blamed more on logistical problems on the supply end than any increase in demand. . . .

A suburban Atlanta vanpooling program also reported a 50 percent jump in participants since Hurricane Katrina slammed into the Gulf Coast on Monday. Atlanta's commuter rail system also saw increased traffic Thursday. "I can tell you there are definitely a lot more people riding today. This lot is never nearly this full this early,'' said long-time rail commuter Tony Williams, referring to a packed parking lot at a train station east of Atlanta. . . .

At one of the few stations open in Charlotte Wednesday night, Steve Clifford, 48, pumped fuel into his Isuzu sport utility vehicle.

"I heard it was going to go up to $4 a gallon tomorrow and there were going to be shortages, so when I got home from work I kissed my wife goodbye and said I was going out to find gas,'' he said.
*Those shortages were the result of government price controls that prevented the market from adjusting to a new equilibrium created when OPEC raised the price of crude.

Update. titusonenine quotes his local newspaper:
Area gas retailers said they’d have ample supplies if drivers would stick to their normal fill-up routines instead of hoarding fuel. “People panicking is where the problem is,” said Eddie Buck Jr., president of Jupiter Holdings LLC, which operates 11 Blue Water convenience stores in South Carolina. As consumers try to stock up on gas, stations are selling double their normal volume and are having trouble replenishing supplies quickly, Buck said.

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