Gas prices rising in a matter of hours

[bee_pipes]

We have two vehicles - a 6 cylinder truck we use for hauling stuff and as a portable workbench around the property, and a 4 cylinder SUV we use for most everything else. I kind of let the 4 cylinder get low on fuel because I had no reason to go to town. By the time I got out there last night the price of gas had gone up 60 cents/gal and there was a limit of $40 for fuel (10 gallons). Reports on the news from Nashville say the price has broken $5/gallon in just one day - was running $3.49/gal for the last month or so.

Gas jumped with Katrina a few years ago - it stayed up until xmas. It did come down a little, but it seems to me that the only time it really comes down significantly is during an election. This week we have been busy with building and mowing. We have one or two cans of gas for equipment and now it looks like that's going to have to last us for a few months until some sort of sanity is restored, or the politicians get the price back down. I expect all restraint to fall away after the election - this is a peak of things to come.

Regards,
Pat

[kawalekm]

The brings up a very central point, that in any kind of crisis, you won't be able to buy (at least not at regular price) ANY valuable commodity that is in demand. This is central to what preparedness is all about.

If I was the owner of a fueling station I could imagine three courses of action. If demand suddenly spiked because of a coming hurricane I could....

1) raise prices to match the sudden demand
2) ration sales by making a 10 gallon limit
3) sell at the regular price and let the tanks go dry

Which of these alternatives is the most correct choice will probably be different for different areas. If you raise prices, you get accused of price gouging, and people will remember that. But, that would effectively reduce demand. If you just let people pump the tanks dry, then maybe the folks at the back of the line don't get any. Is that like abandoning them to the storm? Does that make rationing the best option? You won't get gouged, and at least everybody gets SOME gas to get out of the area. What does everybody think?

By the way, the price of gas drop every November, not just during an election year. I have long term records of gas purchases to back up this claim. The highest prices of the year are between May/June and the lowest at November/December.
Michael

[chrisser]

As with most commmodities, margins on gasoline for the retail distributor are very low.

The gas station doesn't buy gas by the gallon - they have to fill underground tanks with thousands of gallons.

Lets say Joe gas station owner, out of the "goodness" of his heart, decides to ignore all the price and demand signals, and price his gas based on what he paid for what's in his underground tanks, rationed or otherwise.

What happens when he eventually runs out? Well, he won't make enough profit to cover the cost of the replacement gas. The first tanker truck full of gasoline that makes it to his station is likely going to charge more per gallon for him to buy, then he sold the old gas for including his profit. If he can't make up the difference, then he won't get anymore gas. Instead, it will go to the station down the street that raised its prices to meet the supply and demand signals and now actually has gas to sell to those who need it and enough profit to cover the rising costs. In fact, if that station had been steadily raising its prices, but basing them on the rising costs of replacement gasoline, then it is the station most likely to be able to keep its margins low and still afford the next tankful to replenish its reserves.

Economics wasn't created by a bunch of people who were designing the systems from scratch - its an observational science that describes the way things are, and its predictions are pretty darned accurate.

In this case, the "good samaritan" will be out of gas, and out of business, while the "price gouger" will have product, be open, and will have the lowest prices possible within the constraints of supply and demand.

Whether this situation is "good" or not is irrelevant to what will happen, absent government interference. Some would say it is "better" for government to artificially cap prices. Generally, that's a recipe for disaster as it ignores the fact that prices are rising on the wholesale side as well as retail. Further, the rising prices are the most accurate market signal of where to allocate resources.

Lets say you're a trucking company. You have standard runs with standard loads that make standard profits.

Why should you divert your trucks to start hauling gasoline to hurricane-ravaged areas? You have to pay the additional cost of fuel for your trucks. You have to endure a higher risk of damage. You may need to double up drivers in order to react quickly. What's the incentive? Just making what you could have made servicing your regular routes isn't going to cut it - there's going to be a premium to get trucking companies to redirect their trucks and that premium is extra profit to cover the extra costs. That extra profit comes out of the wholesale cost of the gasoline being hauled. If the retailers can't raise their prices, then they can't pay higher costs. If they can't pay higher costs, then the distributors can't get extra trucks to deliver their profit. Ergo, no gas where it is needed most, but gas was cheap until everyone ran out.

This happens at every junction of the supply chain. Resource allocation is determined by profit potential. Take that away and resources don't get allocated efficiently. Instead of higher prices, you get no product.

[bee_pipes]

Just came back from town. We made a trip out to fill up gas cans before the price went up further. Too late. Gas is at $5.00 a gallon. We'll just have to wait it out. We have enough stashed for the generators and both vehicles are nearly full. Stocked up on groceries to prevent the need for another trip to town soon. Glad we're retired and have a full pantry. Must be hell for you folks commuting to work.

Regards,
Pat

[ozarksnick]

Am I the only one who still has "normal" gas prices?

I did a quick search on gasbuddy.com and most of the big cities I looked at (dallas, tx; memphis, tn) are still around $3.60.

What's the deal?

[tufhelp]

Every ounce of me knows it is coming, but it ain’t got here yet in Albuquerque…

Filled up everything with wheels today…

[walls0stone]

I called around, they upped the prices here, then backed off... Tenn' had a gas shortage unrelated to the shut down in texas. It seems to me that it's just like when johnny Carson made the joke about a peanut butter shortage.. sales spiked.