Saturday, September 13, 2008

Gas Prices and Economic Illiteracy

In the aftermath of Hurricane Ike, gas prices are, predictably, spiking in some places. I haven't seen it here in AZ and almost all our gas comes from a pipeline from Texas. In fact, I just came back from filling my tank at $3.41/gallon. So why are prices spiking in some places and not others? Rich Hailey provides the answer here.

"Here's how it worked. The Knoxville area has several bulk fuel storage depots. Some belong to the chain outfits, others are run by wholesalers that supply independent gas stations. In either case, they manage their storage levels to maintain a competitive retail price. When the price of gas is rising, they maintain a relatively full inventory. This means that on average the gas they store always costs less than the current spot price. On the other hand, when gas prices are dropping, they keep inventories low, so they aren't holding a lot of gas that cost them more than the market price.

It's the exact same thing you do to minimize how much you pay for gas. If the price is going up, you fill up in the morning before the price changes go into effect, and you fill the tank full. When the price is going down, you guy your gas in the afternoon, after the price changes, and you buy just what you need. The wholesalers and bulk storage facilities do exactly the same thing, except on a much larger scale. Gas prices have been plummeting lately, so all of the bulk storage facilities have been keeping their stocks low.

Then along came Gustav, which impacted the ability of refineries to deliver fuel to the regional and local bulk storage facilities. ......... "

Read the whole thing of course but don't expect the MSM to give you the real explanation like this. The economically illiterate MSM in its usual wanton disregard for the truth and apparent aversion to doing their jobs (researching a story and presenting just the facts) is going to trot out its usual line about evil oil companies and price gouging. And, unfortunately, a gullible public is going to buy it.

(via Instapundit)

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