Archive: Opinions

Did you notice that as soon as hurricane Harvey hit local gas prices went up about 40 cents?  I read the reason was that as many as 13 refineries had been shut down, and 379.000 barrels per day of offshore crude oil were stuck in the Gulf Of Mexico.  Fracking operations in the area were also halted.  Shipping ports in East Texas were shut down or their operations were disrupted.  But the logic of such an instant price impact escaped me. 

I understand why prices are as high as they are now.  But why did they go up so quickly then?  Theoretically there was still gas at the lower price in our gas local stations, and more was in transport, or stored nearby.  The first words I heard out of anybody's mouths were 'price gouging' and 'opportunists' and 'feeding on the misery of others'.

New York Historical Gas Price Charts Provided by GasBuddy.com

From what I have been able to glean, once oil is taken out of the ground it may be two weeks before the gasoline refined from it begins to show up in gas stations.  Some oil is stored, and oil moving through pipelines may slow down that time frame.  According to Forbes the availability of crude oil wasn't the issue.  There was plenty of crude oil.  The refineries and delivery avenues were the snag.

Once the oil gets to a refinery the turnaround period to turn it into gasoline can be about a day.  And once it has been refined it can be a few days or three or so weeks before it gets to gas stations.  So the turnaround time from oil well to your gas tank is probably about a month, give or take.  Some circumstances shorten that time, and others, such as transporting oil across the Atlantic Ocean lengthen it by several months.

Certainly the hurricane caused interruptions in production.  That stands to reason.  When refineries are flooded you're probably swimming more than producing gas.  Hurricane Harvey reportedly reduced the United States refinery capacity by 28%.

Certainly the hurricane caused interruptions in production.  That stands to reason.  When refineries are flooded you're probably swimming more than producing gas.  87 million gallons a day less than yesterday is certainly significant, and I think we all understand how lower supply creates greater demand (and thus higher prices).  But wouldn't that demand start later, when current supplies begin to run dry?

The oil companies are the ones who reap the profits when prices go up.  You would expect that gas station owners would make a windfall when prices climb, but according to a report CBS published a few years ago, the opposite is actually true.  Lower gas prices mean more profits for gas station owners, because the difference between wholesale and retail prices is larger when gas prices are low.

According to the article,"When gas prices soar, and drivers think they're being gouged, stations are barely scraping by or even losing money. When the wholesale price is soaring, like it did in 2008, 2011 and 2012, station owners can't increase the price at the pump as fast as their costs are going up or they risk losing customers to competitors."

None of that explains why prices went up instantly.   Surely the big oil companies wouldn't take brazen advantage of human misery.  So why the instant rise?  I still don't get it.

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