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.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.