Hurricane Ike Leads to Gas Shortage and Price Increases

by Kevin on September 16, 2008

(Photo courtesy of Wikimedia)

As most of you know, Hurricane Ike ripped through the heart of American oil refinery country this past weekend. Seeing Ike coming the refineries shut down ahead of time. This resulted in shortages in my area — or perceived shortages — that drove prices up quickly.
As I drove to work on Friday morning, gas lingered at about $3.55 per gallon at the local stations. I had two-thirds of a tank and opted not to fill up.

Right about lunch time, folks started getting e-mails and calls from friends about the price jumping up. I was busy and there wasn’t much I could do anyways. As I drove home, the same stations had gone up to $4.19 per gallon and there were lines of cars waiting to get into the station. Ugh.

What Happened: The Beauty of Economics

It’s that old standard called supply and demand. Some people call it price gouging. I don’t think it is. You’re the owner of a gas station with a finite amount of gas in your underground tanks. You get word that you won’t be getting a shipment until at least Wednesday of the following week (and that’s if Ike doesn’t do a lot of damage). What do you do?

For starters, you wait. But then the media does the math and the story hits the airwaves. Panic sets in and people go on a buying frenzy.

What do you do? You raise prices. Less supply and more demand equals higher prices. It’s pretty simple.

The Psychology Behind the Issue

Gas runs are self-fulfilling prophecies.

  1. Reports: There is going to be less gas available and gas prices are going to go up.
  2. People think “well I’m going to get some while I can, who knows when we’ll see another gas shipment.” Everyone runs out to the gas stations with a massive increase of demand.
  3. These panicked buyers are willing to pay just about anything to make sure they aren’t the ones without anything in their tank.
  4. Price goes up and sometimes due to the incredible demand, the station runs out of gas.

Yup, I Got Some, Too

I’ll be the first to admit that I participated on Friday evening. There were reports that it could be two weeks before we got another gas shipment into the area. Whether or not that is true is a moot point. At two-thirds of a tank of gas, I needed gas. I have lunch meetings for work and have to drive to MBA classes twice per week. I actually needed that gas.

We went back out after I got home to go out to eat. On the way I stopped and bought four gallons of very expensive gasoline. I gauged the risk and the benefit outweighed the risk in my situation. It may have been different for others.

This all just goes to show how much of our lives are “just in time”. That is, there is very little inventory left at the end of the day from suppliers of basic needs like food and gasoline. If anything disrupts that supply, you’re up a creek without a paddle. A tanker explodes in a major port and shuts down food deliveries to a large section of the country. A hurricane wipes out refinery capacity for 22% of the nation’s gas supply.

Scary thoughts, indeed.

I’m curious: are you experiencing higher gas prices? Did you run out and fill up your tank this past weekend?


Ricky September 16, 2008 at 10:46 am

I think it is has less to do with supply and demand, and more to do with industry irresponsibilty fueled by consumer panic. Certain stations ran out of gas because panicking people bought gas when they probably didn’t need it. Gas stations with higher profits in mind took advantage of the situation by jacking up their prices. Would it be okay for grocery stores near Houston to raise the price of water and non-persihable food items because they knew they were going to run out? Would it be okay for a home improvement center near the gulf coast to raise the prices on plywood and generators because they knew they were going to run out? Absolutely not! Those stores would get crucified for trying something like that! So then what makes it okay for my state, which is 800 miles away from Houston, to have the highest gas prices in the nation right now? Yes prices did go up, and if you can’t tell i am not real happy about it. No I did not go fill up because we are not going to run out of gas!

LAL September 16, 2008 at 3:43 pm

No I did not run out. I buy gas when I need gas. But I don’t live down south.

I think that people overreacting, but it’s like why when Ike comes people wipe out the shelves for food as well.

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