As gas prices skyrocketed Friday ahead of Hurricane Ike, area residents panicked. By rushing to gas stations to fill up every vehicle and gas can they owned, they drove up prices even further by draining supplies.
It was a self-perpetuating panic – a gas version of a 1920s run on the bank.
Prices jumped 30 cents just while some local customers lined up to fill their tanks. Inexplicably, one Johnson City station posted prices at $5.50 a gallon.
Gas stations refused to discuss the situation with our reporters, but that does not mean they were engaging in price gouging.
And Big Oil remains a favorite whipping boy for its record-setting profit margins in a time of economic strife for the rest of us.
But the best response to this situation is patience, according to experts, including AAA. The organization advises consumers to buy gas as they normally would and ride out the storm in the Gulf of Mexico.
Ike’s sudden shift Thursday toward Houston forced Gulf evacuations that shut down 97 percent of oil production in this refinery-rich area. That means a loss of about 1.4 million barrels of oil a day in the Gulf.
Ike follows on the heels of Hurricane Gustav and is the first Gulf storm to stall oil production at this level since Hurricanes Katrina and Rita in 2005.
“We’ve had two hurricanes two weeks apart that have taken out probably 3 million barrels a day of refining capacity or 16 percent of the nation’s total,” oil industry consultant Andy Lipow told MSNBC.com. “Supplies are going to get thin.”
Today’s oil rigs are built to better withstand hurricanes, so gas prices could stabilize or drop soon if the damage is not too great.
Columnist and economist Walter Williams noted in 2005 that gas prices shot up more than $1 a gallon after Katrina hit.
“Some people have been quick to call this price-gouging, particularly since wholesalers and retailers were charging the higher price for gasoline already purchased and in their tanks prior to the hurricane,” wrote Williams, a member of the board of directors for Media General Inc., the parent company of the Bristol Herald Courier and WJHL-TV.
“For example, suppose you maintained a 10-pound inventory of coffee in your cupboard,” Williams wrote. “When I ran out, you’d occasionally sell me a pound for $2. Suppose there’s a freeze in Brazil destroying much of the coffee crop, driving coffee prices to $5 a pound. Then I come around to purchase coffee. Are you going to charge me $2 a pound, what you paid for it, or $5, what it’s going to cost you to restock your coffee inventory?”
It’s called simple economics – supply and demand. Gas prices dropped this summer because demand dropped.
“Higher prices, along with windfall profits, are economic signals of unmet human wants,” Williams wrote. “As such, they encourage producers to meet those human wants.”
By early Friday afternoon, the Virginia Department of Agriculture and Consumer Affairs had received 70 complaints of price gouging since 8 a.m. Friday – most were from Southwest Virginia.
Sometimes it’s human nature to look for a scapegoat. It doesn’t help that politicians constantly look to make political hay out of our misery.
The best course of action is to remain calm. Wait until you need gas and drive less in the meantime. Ride out the storm in the Gulf and hope that the oil rigs fare well.
Just don’t panic.
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