This latest hurricane in the Gulf was a pretty big deal, and last week before it even came ashore, people began speculating that it would have a significant impact on oil production and gasoline supplies. While it’s true that down in that part of Texas, there is plenty to be concerned with when it comes to oil and gas, the average consumer and the hypersensitive media blew things way out of proportion.
I first noticed some of these effects on Friday when I received a call from my wife urging me to hurry up and fill up my gas tank as soon as possible. She said she had heard rumors that prices were already at $5.00 a gallon just 50 miles north of us up in Grand Rapids. Of course, I know how rumors can be, so I didn’t think much of it, but to be sure, I called a friend that lived up there. Sure enough, no movement on gas prices other than the daily fluctuations.
Then, I get another call 20 minutes later and she says she filled up for $3.85, but overheard the gas attendants talking about raising the price 12 or 15 cents. Well, that is a modest jump to be sure, but it is still a far cry from the $5 rumor. As it turns out, we weren’t the only ones who heard rumors of this pending $5 gas price.
As I finished my grocery shopping Friday afternoon, I still had a half tank of gas, but decided I should top it off anyway, even if it only saved me 15 cents a gallon, or around 75 cents total. To my surprise, our gas station looked like it was running a 99 cent special. There were cars lined up 20 deep out on the road just to get in and purchase $3.85 gas! You would think the hurricane was 24 hours away from hitting Michigan, but apparently all these people had also heard rumors and were willing to spend an hour in line just to try and get it while it was cheap.
Obviously, with a car full of groceries, and considering my time as somewhat valuable, there was no way I was going to wait in line for normal price gas, so I headed home. Just because I was curious, I stopped at this little gas station that is well off the beaten path, and guess what? There was nobody there, and gas was even cheaper! $3.81, so I put in the whole 5 gallons I needed for a full tank. I actually went in to talk to the clerk to see if he heard anything about having to jack up prices because of the hurricane, and he just laughed. He told me about the phone calls he got from some of his friends with stations in town, and the frenzy that was ensuing, and said they had no instructions to raise prices to $5, or even much more than about 10-15 cents, and that somehow this gas scare came from nothing but internet rumors and water cooler talk.
Experts Say Irrational Behavior Drives Gas Prices
While looking through my morning news reader, I saw a story on CNN that gave me a little bit of a chuckle: Experts: ‘Irrational’ Behavior Drives Gas Prices More Than Ike. It is actually a pretty good explanation of how human behavior can create some wild situations.
Experts say that when a perception exists that gas is limited — warranted or not — consumers flock to the pumps even if officials implore them to stay calm.
It’s a combination of fear, desire, distrust and protectionism, experts say.
“When you have a perceived scarcity of any product, research shows the attractiveness of that product goes up,” said Dr. Rao Unnava, marketing professor at Ohio State University.
This is exactly what happened this past weekend. You have the media talking about how the hurricane may impact some oil and gas properties down in Texas, and before you know it, people a thousand miles away are stockpiling gas like they will be unable to find any for a week. It’s like that telephone game we played as kids. Yous start off with a source phrase or sentence, and by the time it gets whispered through a dozen people, the person on the end has blown it out of proportion, or has a completely new phrase.
Were You Affected?
That’s my story, but was anyone else affected by this fake price hike? Was your local media fueling the hype, or trying to calm it? Around here, the media certainly wasn’t helping, and they ran stories showing the lines of cars at gas stations and talked about the possibility of higher prices, so it just fueled the fire.
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About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.
Gas prices in SC soared to over $4 a gallon. Higher than anytime during the summer driving season. What's crazy is the price is still $4 or more Almost a week after the hurricane.
I wasn't affected but I probably would've fueled up not so much because I'd be afraid of $5 gas but because if deliveries are affected, you could potentially not get gas even if you could pay for it.
A few of our nearby gas stations actually ran out of gas. Luckily, we had several other stations in close proximity, but it was odd to see the blank price billboards.
Here in Knoxville, TN it went from around $3.80 up to about $5.00 with many station out of gas. In fact, one of the big chains here, Pilot, is under investigation for price gauging. Luckily I had a little over half a tank and I don't drive much. So I am holding off until it comes back down some. But it was rediculous here.
Gas prices went up here, too (we heard from a friend that they had already gone up $1 on the east coast tho... not sure if it was true), and my wife had, just the day before, convinced me to top off from 1/2 tank and save 9 cents a gallon (er... about $1 total).
As far as irrationality, people really need to think about how much it will cost them before freaking out. Yes, $4 gas is a huge pain compared to $2 gas. But it's not that much worse than $3.85, and stocking up is foolish when we get so much of our oil from all over the world.
I recommend reading "Oil on the Brain" by Lisa Margonelli (I got it from my library, you probably can too); it's a fantastic read about how the oil industry works, as well as insight into what the rest of the world thinks of America, and you'll feel much more educated afterwards. She's also got a website of the same name, with more info like that. It is always important to be educated in how things as important as oil or stocks work, since they form such an integral part of our lives.
Note, depending on how big your gas tank is, and how far you drive regularly (or, how far away the nearest gas station is, I guess), you can add 1-2mpg to your fuel efficiency running with half a tank or less. If you're paranoid, keep a 10 or 20 gallon tank at home somewhere. Obviously, a compact car isn't going to get a huge boost from this, but in an SUV like mine (or bigger), the weight makes a difference, and 1-2mpg can easily save you the equivalent of 30-50 cents a gallon. Do the math!
Call me crazy (or a Prius driver) but I buy gas when I need gas. Manipulating my schedule around unpredictable price changes costs me more than just maintaining my personal inelastic demand.
Thankfully we have a policy of always keeping our tank 3/4 full. So when things started going wonky around here, we were set.
Having an emergency plan in place, and doing things like keeping your gas tank full will ALWAYS save you money.