Gas_prek_09122005210807Last Summer, we looked at the question why Gasoline prices shoot up so quickly, but take much longer to drop.

As the chart nearby shows, Gasoline futures have fallen to the pre-Hurricane Katrina levels. Oil is back to early August levels. Yet many local stations are still charging post-Katrina prices. My local gas station (BP Amoco) still is charging $3.49 for Premium. Although the summer driving season is now over, the process by which prices at the pump come down is simply local competition.

Indirectly, part of the explanation for this is your fault: consumer behavior is why gas prices are lofty. Studies show many people (irrationally from an economic standpoint) go to the same gas station, simply out of habit; I am as guilty as everyone else of this.

If you want to see prices drop more quickly, you as a consumer of Gasoline should go to the station with the cheapest gas. Doing so will impact ALL  LOCAL PRICES.

Why? Station owners are typically local business people (franchisees) who
carefully track how much fuel they sell. Under normal
circumstances, they only make a small markup on Gas — everything
else they sell typically has a higher profit margin.

Remember these three components to basic economic theory:

Consumers are rational;
Price incentives affect behavior;
Competition lowers prices.   

In theory, by shopping around you not only get cheaper gas, but you
help bring down the average cost for gas in your local neighborhood. When your station sees their unit sales decline, they will lower prices to attract more consumers.

If you want some suggestions as to where the cheapest gasoline in your neighborhood is, I suggest any of these sites:

GasPriceWatch.com
GasBuddy.com
FuelEconomy.com
FuelMeUp.com

Of course, demand isn’t the whole equation — there is still the supply shock — and that remains problematic. The WSJ notes "Oil production in the Gulf of Mexico showed marginal improvement during the weekend, with about 57.4% of daily output remaining offline, down from 59.8% of the daily total Friday, according to the U.S. Minerals Management Service."

I’m sure we will be hearing more on this . . .


UPDATE: September 15, 2005 6:22pm

Prof James Hamilton notes that overall Gasoline Demand has fallen off a cliff:

Econob_gas_demand

Whether this is a function of consumer demand slackening, or reduced supply is unknown at the moment.

 

Source:
Petroleum Hits Pre-Katrina Levels
Nymex Crude and Products Fall on Worries High Prices Have Been Eroding Demand
Leah McGrath Goodman
DOW JONES NEWSWIRES, September 13, 2005; Page C6
http://online.wsj.com/article/0,,SB112652363765137892,00.html

Category: Commodities

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

8 Responses to “Gas Returns to Pre-Katrina Levels”

  1. Gas Returns to Pre-Katrina Levels

    …Yet many local stations are still charging post-Katrina prices…Indirectly, part of the explanation for this is your fault: consumer behavior is why we still have lofty prices….

  2. nate says:

    There are at least two possibilities for year 2005 decrease in gasoline consumption:

    1) people were easily able to curtail gasoline (eg, carpool on way to work) yet still achieve the same level of economic activity (go to work, take vacations, visit family, etc)

    2) people cut-back on economic activity to conserve gas. This could have ripple effects that slow down the economy: fewer vacations, no road trips, no rv or boating, less driving to restaurants, etc.

    I am not sure if it is 1 or 2

  3. Bill says:

    I agree with the previous commentor. Gas price shock has had a definite slowing effect on gasoline purchases. No lines here in Mich since Katrina hit. Gas hit $3.49 in our area. Avg now about $2.80 . I buy at one station sort of out in the pucks on the way to work . They have been consistently lower by 20c than most other gas staions . I vote with my tires as well . Cheapest station gets the business from me. This decreased use has also given a false sense of security in MORE reserves on hand as well . Would be neat to see how many 10-15 mpg SUV’s have been sold since Katrina , as opposed to pre Katrina week .

  4. M1EK says:

    Don’t forget that a million or so people who used to live on the Gulf Coast aren’t doing much driving, and it has nothing to do with voluntarily cutting back. Sometimes the simplest explanations are the best ones…

  5. WILLisms.com says:

    THE CARNIVAL OF THE CAPITALISTS.

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  6. WILLisms.com says:

    THE CARNIVAL OF THE CAPITALISTS.

    Welcome to THE Carnival of the Capitalists. When hosting traveling blog carnivals, it is customary for the host to rank, rate, profile, hide, categorize, and otherwise filter the entries. Sometimes the better posts are near the top or are given…

  7. larry says:

    I have reduced my gas consumption by 25%. Instead of 7 trips a week to buy cigarettes, I go 3 times to gas station buy cig. and gas only as needed. Mail all bills or use internet. Go to supermarket 3 times instead of 4. My second car I use for work only uses about 2 gallon in it weekly. I just take a gas can in my first car fill it maybe 2gallons and just put it in my second car weekly. Saves a 6mile trip to gas station. Gas stations have been looking very slow. Tampa area florida. Maybe they will build a few more refinery. lol

  8. Penny says:

    I would love to find lower priced gas, but you spend $.50 to find gas that is 2 cents cheaper than the gas station down the street. Why aren’t the gas companies accountable for fleezing Americans. Corporate greed is killing our country and we just sit back and complain. There is more of us peons than there is of the Fat Cats, so get it together and do something like not buy anything for a week, stay home for that week, that sure would hurt a few pockets. And if that doesn’t work, stay home 2 weeks, someone up the higher end of the ladder will get the idea and treat us like fellow human beings and give us the opportunity to live a decent life, not one that is based on pay check to pay check.