Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gasoline Shortages And Higher Prices Expected

Commodities / Gas - Petrol Sep 14, 2008 - 07:06 AM GMT

By: Mike_Shedlock

Commodities There is an excellent discussion of the Implications of a Ten Day Refinery Outage on The Oil Drum. I encourage everyone to take a look. The comments are good too. Here are a few snips.
Insight 4. It is likely that we will have product shortages for at least the next three to four weeks, because of shut in refinery capacity and reduced refinery runs.


We have said that it is likely to take a week or two to get refinery production up to pre-Ike levels. Suppose it takes 10 days. Adding 10 days to the date of the hurricane (September 12) brings us to September 22. If it takes an average of 18.5 days to get product from Texas to New Jersey by pipeline, it will take until approximately October 10 before supplies are back to normal. It could be a little shorter than this, or quite a bit longer.

Insight 5. One of the biggest refined product pipelines, Colonial Pipeline, is now reported to be shut down, because of lack of refined product input.

Colonial pipeline is one of the largest pipelines, with a capacity of 2.4 million barrels a day. It serves the Southeast and the East Coast.


Figure 3. Colonial Pipeline Route

Until Colonial pipeline is back to carrying full capacity of gasoline, diesel, and other refined products, there are likely to be shortages along the gulf coast and the Southeast. The Northeast may also begin to see shortages.

Other major outages have also been reported. Explorer pipeline, carrying 700,000 barrels a day of petroleum products from Texas/LA to Indiana, is completely shut down. Plantation pipeline, carrying 600,000 barrels a day of petroleum products from Louisiana to Virginia, is operating at reduced rates.

Insight 10. Because some areas are likely to be very short of supply, it is likely that gasoline prices would need to rise to $10 a gallon or more in those areas, to cut back demand sufficiently.

In some areas, there may be temporary shortfalls of 25% of more of gasoline supply. To allocate such short supplies would take a very high price. Government officials are not likely to let this happen. Instead, we are likely to see many stations that are completely out of gasoline, and other stations with long lines, selling at most 10 gallons per customer.

The Oil Drum offers 12 insights as to what is happening and what is expected. Here is my take.

Expect The Wrong Action From Bush And Congress

I do not know what price it would take to get efficient usage of fuel in this outage, but I suspect it is far less than $10. Clearly the drum is guessing, but so am I. What I do know is that the market should set the price and any price people are willing to pay is the fair price.

Letting the free market set rates would encourage efficient usages such as car pooling, taking public transportation, or canceling a 200 mile trip to take the kids to see dear Aunt Millie.

Unfortunately, the most likely government response is: "We will investigate and prosecute those engaged in 'Price Gouging'."

I also expect to hear "There is no shortage" and "Do not panic". Finally the government will suggest car pooling and cutting unnecessary travel, but unless price forces the issue, too few will react. Instead they will react to the statement of "There is not shortage" and continue on their merry way to visit Aunt Millie.

Such unconcern will continue until there are no supplies and people are stranded with Aunt Millie, and/or rationing measures (an extremely inefficient way to regulate use) are put in place. I hope I am wrong about this but this is what the reaction in Katrina suggests.

Broken Window Fallacy

Another reaction I expect is hear will come from a bunch of clowns on CNBC all touting how Ike will provide a stimulus to the economy. It will do no such thing. And I may as well rebut the idea in advance.

Here is a snip from Bill Gross Wants Treasury To Buy Assets To Prevent Tsunami that discussed this very issue.

Mooooooo!

As long as we are dissecting Bill Gross we may as well take a look at a statement he made in his August Outlook called Mooooooo!

" Make no mistake, the current conundrum that must be solved is: how to make the price of 120 million U.S. barns stop going down in price and then to make them go up again. That, however, is easier said than done.

One of the wisest men I know has this serious but admittedly impractical solution: have the government buy one million new/unoccupied homes, blow them up, and then start all over again. "

One of the wisest men Bill Gross knows is a complete fool.

How many times does the broken window fallacy need to be debunked? A good writeup on the complete insanity of building houses and blowing them up, paying ditch diggers to dig holes just to fill them up again, or as some have proposed burying money and having people search for it can be found in The Broken Window Fallacy Reapplied or Economics in One Lesson by Henry Hazlitt.

Yes pipelines, refineries, and buildings will have to be repaired. However, those were productive assets already. Instead of putting money to work building new productive capacity, that same money now has to go to repair what has already been built. Economically this is not a good thing. Nonetheless, the one thing I am most sure of in this mess is a parade of complete fools will appear on CNBC telling everyone how Ike will "stimulate" the economy.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2008 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in