posted a question
According to the article's author and the experts she quotes, when the president and others call on citizens to conserve gasoline to avoid potential shortages, what can be the paradoxical result?


A. Shortages might occur, but only in areas where deliveries are held up due to damage from Hurricane Katrina.

B. Shortages are less likely, because the president's words will reassure people.

C. The president may add to people's fears of a shortage, in turn, causing a run on gasoline.




Fueling the Frustration
Get used to higher gas prices, experts say, but don't expect long-term shortages

Elizabeth Souder
September 2, 2005



Anxious drivers have created a run on gasoline.

It's sort of like a run on banks: Drivers panic that stations will run out of gasoline. So folks rush to fill up their tanks, causing long lines at filling stations. People who normally leave their tanks half-full top up and maintain full tanks, sucking up more gasoline than usual and causing some service stations to run low.

"I've heard the president talking about ... [shortages]. The more he talks about it, and the more everyone else does, the more it becomes a self-fulfilling prophecy," said Dennis O'Brien, director of the University of Oklahoma Institute for Energy Economics.

The gasoline industry is wrestling with producing enough fuel for the country and transporting that fuel to service stations after Hurricane Katrina knocked out a chunk of refining and pipeline capacity.

The run on gas is complicating the process.

Even in areas where distributors can maintain normal deliveries, stations might run low if more customers than usual fill their tanks.

President Bush urged Americans on Thursday not to buy gas they don't need as supplies run tight.

It could take months to restore Gulf Coast drilling, production and pipeline operations because the hurricane broke a number of links in the chain that takes oil from the ground and puts it in your SUV.

Experts say get used to $3 gasoline for the next six months or so, but don't fret about long-term shortages.

"The word shortage conjures up images for us older folks of the old days of the '70s, and it's not going to be quite like that," said Peyton Feltus, president of Randolph Risk Management in Dallas.

Analysts say the U.S. has plenty of crude oil, even though some drilling was disrupted by the hurricane.

More important, the storm caused refining capacity to drop around 11 percent in the U.S., analysts say. In other parts of the country, refiners were already producing at full capacity because gasoline supplies were low even before the storm.

"With inventories already low, and summer gasoline demand running ahead of production, the prospect of outright shortages of gasoline in the next few weeks has become quite real," Goldman Sachs economists wrote in a research note Thursday.

Further, the transportation of gasoline from refineries to service stations has been disrupted by the storm. Pipelines that carry gasoline, heating oil and other fuels from the Gulf Coast to other parts of the country were damaged. Although Alabama's Colonial Pipeline, which carries gasoline to the South and Eastern U.S., restarted service Thursday, it will only operate at 50 percent to 60 percent capacity.

"The good folks must understand that major refineries have been shut down, which means it's going to be hard to get gasoline to some markets," President Bush said Thursday.

That means gasoline must be transported by truck or ship. President Bush said he lifted restrictions on foreign ships carrying domestic oil and gasoline because there aren't enough U.S. ships to meet the supply needs.

Once a retail station takes delivery of gasoline, the manager checks the latest wholesale prices to set the station's price for customers. An honest service station owner, who doesn't gouge customers, still must charge a high enough price to generate enough cash to buy the next shipment. And he doesn't know how much that next shipment will cost.

"There are some considerations that might tend to legitimatize what might look to all of us consumers as gouging," said Mr. Feltus of Randolph Risk Management.

Mr. Feltus said gas prices could be "hyper-extreme" in coming days, and pointed to the $6 a gallon some Atlanta stations have charged. Such high prices could push people to use less fuel and even adopt new energy-efficient habits, like carpooling, riding motorbikes, cycling or using public transportation.

"From this supply curtailment we will see a dramatic shift in demand habits. Those are hard to come by, but once they're in place, they're difficult to reverse," he said, but added: "It's going to be painful."