Fragility

The floodwaters in Houston have not finished rising 250 miles south. The ramifications are starting to be felt across the country in the form of higher gas prices at the pump. Here in Texas we have been enjoying gas prices that hover within 30¢ of the $2 mark. Every once in a while they dip below that mark. With the tragedy of Harvey, the flow of refined gas has been interrupted. The interruptions are caused by a disruption of the flow of crude oil coming in via ports and pipes. Motiva, Exxon Mobil and Valero have shut down refining activities as the storm moves north east. That represents 20 percent of the nation’s refining capacity.  That’s 3.9 million barrels per day. This is why we have reserves. The September futures market is up 6¢. This creates an economic incentive for other refineries to step up their production to make up the difference to bring us back into equilibrium. 

How does all of that map to our experience at the pump? Many busy gas stations rely on daily or more frequent deliveries of gas. The size of their underground storage tanks are optimized to satisfy customer demand while staving of ecological disaster. With a real interuption in that flow of fuel on the market, these companies are looking to buy gas at whatever the price. Gas stations have to choice between buying gas at exorbitante rates or stop selling altogether. A business should not be ablieged to sell gas at a loss. 

This apparent interruption in the flow of fuel causes people to panic. When you hear that they ar running out of gas, the unfortunate response is to go fill up your tank. That’s what we had starting yesterday and today. A run on the gas pumps causes them to actually run out of gas. This is exacerbated by the holiday weekend. By mid day we were seeing station report they were out of unleaded. You are OK if you need diesel or are willing to use E15 gas. Reports are coming in about $5 and $9 gas. By this evening the gas trucks rerouted from around the country are starting to arrive. The panic should be over by the weekend. 

When I was driving home this evening it struck me how fragile our society is. We have a run on the gas pumps and it starts looking like the precredit scroll from a zombie movie. People just need to calm down and it will be OK. The folks in Houston are the ones who really need our help. 

References: Motiva, Exxon Mobil, Valero, Total cease operations
By Jordan Blum Updated 3:54 pm, Wednesday, August 30, 2017

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