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Sunday, October 05, 2008

The Great Gas Panic of 2008 Winds Down

Some stations have their pumps bagged, but more stations than not have gas to sell now. The lines have faded away and the four-lane was choked with day-trip traffic. Tourism-based businesses are undoubtedly breathing a huge sigh of relief.

Yet Matt Simmons speaks of low nationwide inventories and warns that a run could deplete the system again — and not just in the southeast.

Something I thought I’d mentioned in earlier gas panic posts, is that gasoline and diesel distribution is very much a regional thing. We don’t have a nationwide grid of pipelines for fuel like we do for electricity, so when the southeast (or west coast, or upper plains states, etc.) has a problem, there’s not a whole lot that other regions can do to pick up the slack. We saw this earlier in the year in the plains, where several refinery problems led to acute shortages much like what we saw here on Planet Georgia… but being “flyover country,” you may not have seen much coverage unless you live there or follow the peak-oil news.

So why is it even a problem? For starters, refinery margins have been exceptionally tight — if they’d had the same margins now as just a few years ago, we would have been paying $5/gal instead of $4 this summer. For whatever reason, probably political, they were eating some of the increased costs this summer. However, some of them tried to squeeze expenses out of their system to make up for it… thus the spate of refinery fires and explosions we’ve seen this year. There also isn’t much incentive for them to increase capacity — given the world is at or near the maximum production rate now, by the time they finish a new refinery or expanding an old one, they might not be able to get enough oil to take advantage.

So with margins tight, refineries have been producing just enough gas to keep things going — if they start getting better margins (and probably will after the elections), they can ramp up production to rebuild inventories. But under the current circumstances, inventories declined to 40-year lows just before the hurricanes hit (graph from TheOilDrum.com:

gasoline inventories graph

Had inventories continued to drop, we may well have seen spot shortages (or outright panics) even without the hurricanes.

Now that our regional gas crisis is starting to recede, we can start dealing with the worldwide financial crisis. In some ways, we’re in a similar situation: the entire financial system is seriously shaky, and a few bank runs could easily bring the whole thing down. But that’s the way it’s always been — banks take your deposits and lend them out, making money off the difference in interest they pay you (if any) and the interest they charge their borrowers. Great racket if you can get into it — but most of us don’t really care so long as the ATM spits out twenties, the checks don’t bounce, and the credit cards continue to work. But in the end, all banks only hold markers and a certain reserve cushion (usually 10%–20% of total deposits) to cover problems. The next couple of weeks could be very interesting, as major banks totter on the edge and nervous depositors try to reassure themselves that the FDIC won’t run dry.


  1. Yup Far, I agree the price of gas is political...Seems those paying $3.50 or lower are in states, that the GOP are trying win, or is it just my imagination?

    Investment is made in the hope of future growth. Interest is only realized after growth...Agree? Energy = Money. Petro-dollar?

    Thanks, yooper

  2. Makes sense, Yooper. Oct. 15 should be interesting, as it's my next payday. Hope they don't have any "unexpected glitches holding up deposits"!

  3. Glad to hear that things are better on the gas front, Farfdad.

  4. Hey FAR,
    Gotta agree with Yooper there, but glad that things have eased up a bit your way. We're driving less and saving a bit with the Vibe along the way, even though prices are still in the high $3+ range. Again, glad the truck is gone now, otherwise we'd really be hurting!

  5. Hmmm, Asian markets down, European markets opening up down....We're not fool'en anybody....

    We'll see what happens today, hopefully the auction will go without a hitch, however, this has never been tried before as the scale is hundreds of times larger than what has ever happened in the past...

    Maybe by the end of the day Far, your mortgage will be owned by some foreigner (if it isn't already)......

  6. Thanks, Boran & IVG.

    Yup, Yooper, we'll have to sit tight & see what happens. Are we Wile E. Coyote, over the edge & scrambling to get back to the cliff, or did we stop in time (only for the Road Runner to zip up behind us, go "beep beep!" and send us over the edge anyway)? Heh.


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