It's a real shortage.

In recent months, American gasoline refineries have been running at 98% capacity, 24/7, and barely keeping up, eating into the emergency stocks. There have been noticeable price hiccups caused by such minor things as scheduled maintenance causing a day or two of slightly slower production.

Monday, we had somewhere between 8-12% of our gasoline production shut down for a time that might be measured in months, and the production of gasoline *additives* shut down for the same time.

As someone put it, "Econ 101."

Supply and demand.

A hundred miles or so up the road in Greenville, SC, we have seen the same thing. Long lines, > $3/gallon, people getting snippy. I'm going home to dust off my Road Warrior Halloween costume and stock up on dog food and shotgun shells.

Who's with me?

Wholesale gas in Athens, Ga. was $2.95 yesterday (I have my sources) - but there are gas stations charging up to $4 this afternoon, (or were, as the case may be by now...) ---the line I was in (had to top off just in case...) was not near as long as the ones during the Embargo, but that seems to be a function of location.

Now I've got to clean out the garage to fit the cars in so nothing is siphoned out overnight!

Will,
Yes the rumors of gas rationing have been floating across Columbus all afternoon. Gas lines at all stations. I was able to fill up, after 4PM after about a 25 minute wait. Rumors of rationing have been denied on the news.

Good thing I topped off this weekend.

The shortage due to the 8-12% production outtage would be a national phenomenon if that were the reason for the price increases seen in Atlanta. As a resident of California, I can tell you our gas prices have risen nowhere near that much since Katrina hit. We went from about $2.75 to about $2.85-2.90.

It is paranoia and rumor driving this. Shortages caused by Katrina are not the primary cause.

Know what gets me? How the moment a problem is announced in fuel production, gas prices go up. In reality, price increase should take days or weeks to be passed down through the supply chain. Don't let anyone tell you gouging isn't happening.

America is slowly reaching European gas prices. Average price in Northern Europe at the moment is $6. How does that sound?

What are the average taxes in Northern Europe on gas though?

YYashmak,

The 8-12% would not be a national phenomenon since we don't have a 'national' gasoline market. The west coast pipelines are separate from the Midwest pipelines. There are just not very many (any?) connections between the west coast network and the rest of the country. Events in one region can and do create local shortages, at least for a time. Long term, it will balance out but long term could be weeks away. Same thing for Natural Gas. NG is actually a bigger issue than gasoline since there is no strategic reserve for NG. The largest NG market in the nation is the Henry Hub in Louisiana. I have not heard if it is down or not.

Glad I filled up my tank on Sunday, so I don't even have to look at a gas station in Atlanta for awhile.

To European: $6/gallon (or liter) sounds pretty atrocious...and to it I say...

Man, I'm glad I don't live in Europe, where the prices are like that *all the time*, instead of just during freakish emergencies and Acts of God.

Take photos of the stations with the prices and the building clearly visible. Send em in to the local paper, cause you KNOW they will do a gouging story later.

I detected insufficient gratefulness to the environmentalists, trial lawyers and NIMBYs who are together the immediate and obvious cause of the gasoline shortage. It was NOT caused by Katrina which was an absolutely predictable event. It's just that environmentalists, lawyers and NIMBYs cannot predict beyond the ends of their noses.

So watcha gonna do now? Show some backbone and get those refineries built or snivel around some more?

Working on the trading floor at BP's Oil Americas office, I see some interesting things with regards to oil prices and supply. Our office coordinates trading oil on the markets as well as supplying crude to refineries and shipping along pipelines to terminals. To quote one of the shipping people today:

"We've never seen anything like this before."

It's a pity that Friday is my last day here, I'd like to see more of how this works out from the inside.

So watcha gonna do now? Show some backbone and get those refineries built or snivel around some more?

Hey FredZ,

Does this mean you are up for alternative fuels? Or is that just too far beyond the end of your embronwed-with-Fox-news'-vapor nose for you to consider.

Perhaps you will remember this better than I do...there was price gouging a few years ago, either because of the Iraq invasion or 9/11, and the governor or some other big honcho here in Colorado told people who had bought gas at the higher prices that they could go into the gas stations and get a refund for the difference between what they paid and what they should have paid. Since not everyone had their receipts, whoever put this into place said the gas stations would just have to take the customers' word on the amount they paid if they came in without a receipt...

The gouging people are wrong.

It is economically optimal for gas vendors to raise prices immediately (as soon as the potential shortage is known of). This serves at least three functions:

1) It slows down consumption, protecting consumers from the shortage.
2) It preserves the vendor's profits in the time window spanning the reduced gas availability, making their business more resilient.
3) It allows consumers to plan in advance to shift to alternatives (carpooling, taking the civic to work, and with longer lead-times, more radical lifestyle changes). If shortages are allowed to happen, there is no planning period.

"Everybody north of Tennessee and North Carolina are fine."

Yeah, right. Prices hit $3.49 this morning at the 40th parallel .

----------------------------

"Does this mean you are up for alternative fuels?"

Yawn. If you're suggesting replacing the gasoline-engine auto you're barking up the wrong tree.

I was just about to offer a few comments on "gouging", but Aaron Krowne went and did it for me.

So I'll just second what he said. It ain't gouging, it's the market responding to circumstances like nothing else can.

The cost of fuel in Atlanta HAS to go up because of the change in logistics. Pipelines are by far the most efficient means for transporting bulk liquids.

Not only did you lose the cheapest means of transportation into that region, you now have to replace it. How many tankers and barges are available on the open market (not already contracted) to transport these necessary volumes? Will these be short term or long term contracts for the use of this equipment (it affects prices? Are they near supply or do they need to be moved there? How long will it take to get from the supply to the demand? Are facilities available to accept this type of shipment? Is there dock space to accommodate these shipments? And your transportation costs just skyrocketed.

Rail? Are there rail cars available? Continue with the same questions as above. And your prices are yet higher.

Trucks? A tank truck holds 9000 gallons. That will supply 600 cars at 15 gallons a pop. Are there trucks available? Continue with the same questions as above. By far the most expensive option.

Throw in that current operational refineries have limited dock space, limited rail racks for loading and limited truck racks for loading and you get an increase in prices. The dramatic ones you see today.

That gas station that's up to $5? Gouging? Possibly. Most likely his tanks are running low. He called his distributor with empty tanks who has worked the logistics nightmare to arrange for supply. And he knows his price. He passes that on to the station owner.

It never fails to amaze me how fast the gouging claims come out when gasoline is by far the most transparent market in the entire country. Name any other product that has its prices advertised on every street corner in the country.

Mark

P.S. Formerly worked for Shell Chemical in Logistics. Scheduling pipeline, barge, tanker, rail and truck slots for shipments across the US.

Re: Seirhune's comments about European gas prices. I was in Italy earlier this summer and the price was about $1.50 per liter... in other words, about $6.00 per gallon. Needless to say, they generally drive miniature cars and motorcycles.

Bush is releasing the strategic petroleum reserves. Should'nt the price be plummeting as quickly as it went up? Hell no...the pols will all harumph around spouting platitudes about pipelines and time to get to the pump. I call BS....this is some screwed up oil economics!!!! But what the heck we don't shoot looters why target the big oil.....
On another note....Where's the UN? Should'nt Kofy and the boys be gettin on this gravy train!!!

Mark -- great comments and very educational. My question to you is:

Why is it only one station (a single BP) charging $5.87? I have seen other BP's that are nowhere near that in various areas of Atlanta; most in the high 2.90's to mid 3.10's. Would these BP's each have different distributors?

I believe that even with your explanation in mind there is still some greedy running-up of price, more so in some cases than others. I don't blame them; it's good capitalism and that's the power of the marketplace. But it's still rude and tacky :-)

Events like these make me glad I decided on the Civic 4 years ago; 35-40 mpg in Atlanta ain't too shabby.....

I live in Atlanta, the media pretty much drives this town. When the media says there's a chance of an ice storm or some snow you should see the people flock to the grocery store to stock up on bread and milk (don't know why those two items are so popular in a storm). I'm not surprised by the scene I saw driving home today after seeing reports of a gas shortage being sent around by e-mail. There were police officers directing traffic in a couple stations because of the amount of cars. I lucked out and filled the tank last night at $2.59 a gallon. The station near my work was at $3.49 a gallon when I left today.

Re: Rumbear

Crude is not gasoline. It still needs to be transported from the SPR to operational refineries to be distilled into products including gasoline. That takes a while. The SPR release was intended to keep the currently operational refineries up and running. 1.5 million barrels a day of production is currently shut in the GoM. An additional 1 million barrels a day import capability is shut in as the Louisiana Offshore Oil Port (LOOP) is currently not operational.

Refineries need throughput to operate at maximum efficiencies. A lot of that shut in oil production and import capability is pipelined to refineries in the Midwest. They are approaching operational inefficiencies due to reduced volumes. Right now. That means reduced volumes of products created.

We have lost (temporarily) 10-12% of the refining capabilities in this country. Refinery utilization has been at record highs for about 2-3 years now (96-97% of capacity). There is no spare capacity to make up for the lost capabilities.

Relaxing the EPA fuel standards was a huge move to make this a short-term problem. We can now import lower grade gasoline to offset the refining losses. Fuel we could not import in the past due to our increasingly stringent environmental standards.

Re: Skymuse

That’s why I included ‘possibly in my post. Note that branded stations (BP, Shell, Exxon, Connoco) actually sell their own fuel. The BP logistics may be more difficult than the competition. Given the discrepancy in price it could be gouging or it could actually reflect the real logistic situation on the ground.

And all of that destroyed oil and gas infrastructure? Don’t plan on any of that being replaced any time soon. Not by lack of will (or cash). By lack of supply. If y’all haven’t noticed, the price of oil has been quite high for 2 years now. And it has constantly been increasing. I currently work for an oilfield manufacturer and we are setting records every month on shipments. We cannot make stuff fast enough. Our vendors cannot get stuff to us fast enough. This has been happening for two years. 2-1/2 years ago I had a staff of 4. I now have a staff of 12 and I have not been quick enough to meet the human capital demands of my department. Same goes for materials. The economic ripples of this hurricane are going to be dramatic and long term.

Gas station owners are doing the same thing that futures traders are doing in NYC. And nobody is accusing them of "price gouging". They are simply trying to predict what the price of gas should be at a particular moment. And for the gas station guys, that moment is as soon as you can get to the front of the line.

Datapoint:

Yesterday, in Cortland, New York, I was informed of a particular gas station in town where regular unleaded was selling for $2.54, while everyplace else in town was running about $2.70+. Seeing what was coming, I drove over there to fill up. There were four cars at every pump when I arrived.

Today, that station was selling regular unleaded at $2.79.

~~~~~~~~~~~~

In other news: "Gouging" is a ridiculous anti-concept, and nobody who tries to use it can possibly be taken seriously.

As of 9:00 this evening, I went around to a half dozen gas stations in Athens. Every one of them had plastic bags over all the pump handles, except one Shell station that still had super-premium gas and one BP that still had diesel. I wonder when they will get resupplied?

Re: Billy

Wow. $2.54 vs. $2.70 (as your baseline example). A whopping 6% gouge. And what was the result of the price discrepancy? Well, you described it perfectly. The marketplace sucked that place dry. And he now had to resupply. Higher wholesale prices as demand is now outstripping supply

I'm not saying that gouging does not exist. I'm just trying to inform the reader as to cost drivers which drive up prices.

As an industrial example, I consume quite a bit of titanium in finished plate form. Price of titanium has more than doubled this year, to the point where I am investigating alternative metallurgies. Why has the price doubled? Look at Airbus, Boeing and Lockheed aircraft backlogs. Through the roof. And the largest supplier on the planet? Russia? One of the two major titanium facilities burned to the ground last year. Russia is (of the top of my head) 40% of supply. Guess what? Increased demand with reduced supply means prices skyrocket.

I'm looking for titanium substitutes. The energy market will look for gasoline substitutes.

Mark

Of course, what half his audience heard from the gov's speech was "...rush out and hoard..."

Just one example of what we are talking about:

SAN FRANCISCO (AFX) - Chevron Corp., among the oil companies hard-hit by Hurricane Katrina, said Wednesday it is trying to re-establish contact with up to 3,000 employees scattered by the deadly storm.
"Our overriding concern right now is the safety of our employees," Chevron spokesman Mickey Driver said, speaking from the company's Houston office. "We need to hear from our employees and we have not heard from the majority of them." Chevron is asking all employees based in Louisiana, Mississippi, Alabama and the Florida panhandle to call 1-800-334-3963 to let the company know how they are faring. Communication in the region was severely curtailed when the storm roared ashore early Monday just east of New Orleans, downing phone and power lines, flooding roads and shutting airports

Chevron , the nation's second biggest oil company after Exxon Mobil Corp. , evacuated 2,100 offshore employees and contract workers from its offshore rigs ahead of the storm and shut its New Orleans office, sending its staff of 700 to safer ground

The San Ramon, Calif.-based company also owns the giant 325,000 barrel-per-day Pascagoula, Miss. refinery, which remains shut
These are the people that will have to bring production back online and Chevron does not know where they are, how many are OK, much less when they will be back at work.

Mark: everything you've been posting here makes perfect sense, and I didn't need you to post it for me.

Frederick Bastiat pointed out the difference between "the seen and the un-seen" 150 years ago, now. Fifty-nine years ago, Henry Hazlitt pointed out that the difference between a good economist and a bad one is that the latter only sees what's right up in front of his snout. These days, every manifest dolt on the scene will get up on his hind-legs and start hollering about "gouging" because he can't see past those digits on the pump. This is very closely analogous to the situation of a twelfth-century hind who thought that rotting meat caused flies and that the world was flat.

The difference is that there is simply no excuse for this state of affairs, now. Yes: a modern division-of-labor economy is a very complex set of concepts. But it is exactly this sort of horseshit that convinces me that we're living The Endarkenment, now. We're ass-deep in morons, and the bureaubots always hear them, first.

Onward.

Three possibilities here:

1. A station is selling gas at $3 and the station across the street at $6. The $3 station has lines blocks long, while the $6 station has gas immediately available. So if somebody chooses to buy the $6 are they being gouged because their time is more valuable than the $3 customers?

2. All the stations selling gas at $3 are out of gas. Only the $6 gas remains. Now it really must be gouging because they are taking advantage of a shortage... caused by artificially low prices. If all prices are artificially low, then nobody will have gas and nobody can gouge and that's "fair".

3. The $3 station has no lines. Nobody goes to the $6 station. Rumors start that they are really dealing drugs and aren't selling any gas at all.

I live in Atlanta and when I drove to work yesterday morning, I filled up. I am glad I did... I wasn't worried about the stations running out of gas, I was worried about lines. I knew people were going to freak out, but not until the afternoon. There is a gas station in my neighborhood that jacked there price up to $4.75. I will push my car to another station before I take my car there again. None of the other stations jacked their price up that much.

One HUGE difference between Atlanta $5 gas and European $6 gas - almost all of that $6 in Europe is TAXES, which is going to pay for services you are getting (in theory) - How do you think you pay for things like socialised medicine - we are getting nada back for that $5, except the gas we pay for

Another part of the problem is that most gas stations are not owned by the oil companies but by franchisees and they are primarily "cash flow" businesses, i.e. most of their cash is tied up in inventory. So when a gas station sets the price for gas, it has to be concerned not only with what he paid for the last gallon, but what the next gallon is going to cost.

Every gas station on the ride from Norcross to Marietta (across the top of Atlanta) either had a line yesterday or was completely dry.

People were leaving work early to "top off" their nearly full tanks.

Prices have gone up over $2.00 in two days.

My hope is that this is supply and demand driven. The demand now is irrationally high. By Saturday, every car in Alanta will have a full tank and no one will be driving for the long weekend. Demand should plummet. It'll be interesting to see if price follows the curve.

Panic on the Streets of Georgia

It's worth noting in the small city I live in, which is located along an interstate, that gas stations here charge different prices depending on where they are located. The ones right along the interstate charge more than the ones located downtown further away from the highway.

One piece of advice to remember: Brand name has little to do with what price you pay for gas, with the exception of the "lesser name" stations (like Sav-O-Mat in my town) and places like Wal-Mart. The price is generally determined by the supplier, not the brand, and it's not unusual for two stations with the same brand to have two different suppliers.

I filled up yesterday (Richmond, VA). There were no gas lines. Everything was very calm. Gas has gone up about fifty cents to 3.10 per gallon. That's about a 20 percent rise and, I guess, it reflects about a 15 to 20 percent disruption. Someone wrote that there are 144 operating refineries in the US. The President said 9 are out of commission at this point. Distribution is a problem. But it looks like America will keep working and this is not 1974 at this point.