Gasoline Prices

I thought that I would weigh in a little on the price of a gallon of gas in these turbulent times. The news has touched on this a little, but doesn’t give a great picture.

Unless you live under a rock, you have noticed a 20-30 cent per gallon rise in gas prices at the pump over the last couple of days. You have probably also noticed that the price of a barrel of oil has decreased, briefly dropping under $100/bbl today. The natural question is, “What the heck?”

The answer that the news seems to be giving is “Hurricane Ike”. That is a correct answer, but only part of the picture. What has happened is that when Hurricane Gustav landed last week, many of the gulf refineries had to shut down. These refineries pipeline finished product north into our region.

What is not commonly understood is that refineries do not work like a light switch. Some refineries did not come back up quickly. I was told yesterday that one major refinery was still not on line. (As a related aside, apparently there was also an outage at the Whiting Refinery this week).

The result is that as Ike is approaching Texas, refined oil products (i.e. gasoline and diesel) are in relatively short supply in the Midwest and there are threats of more outages this weekend.

Thinking very briefly about the laws of supply and demand lead you to the quick conclusion that prices had to go up to protect the limited supplies of gasoline.

Cross Posted at Hoosier Access