How does gas price gouging happen in a crisis like Hurricane Ike? First, I’m going to tell you something you won’t believe, it’s not the oil companies doing it. No major or minor oil company is going to raise retail prices to any unreasonable level during a crisis. To understand how this happens you have to understand the gasoline distribution chain in the U.S. Major oil companies do have some company operated retail outlets. Those are being reduced significantly, simply because big oil companies aren’t good at running retail outlets. At one time most were dealer operated. A dealer, like a franchisee, leased a retail unit from the oil company and paid rent. He was an independent businessman and could set the retail price. This was mandated by the federal government. The oil company can suggest a retail price, but by law, the dealer sets his own price. Dealers, like company operations, are going by the wayside. Most branded retail outlets(BP,Shell, Exxon, Mobil, Chevron, Texaco, etc) are now jobber operated. A jobber owns or leases the outlet, runs it himself or leases it to a business person who pays the jobber rent, and the jobber delivers the gasoline from the nearest terminal supplied by the brand he represents. Jobbers may have multiple brands and hundreds of outlets.
Sounds complicated, but even a media dolt should be able to get it. But, they won’t. I can promise you the culprit in every media presentation of Ike price gouging will be the oil companies. The oil companies are busy trying to get their refineries up and running as quickly as possible to minimize the financial damage to them and their dealers, jobbers, and customers, and they will be hung out to dry by sleazy politicians and ignorant talking heads for something they didn’t do. Why? It drives another spike in the heart of drilling and get the sleazy politician air time right before election. The politician probably knows the truth, but could care less. Gotta wear the white hat and shoot the bad guys.
Why does gouging happen? You, a consumer buy your gasoline from John Doe, a Chevron dealer in North Carolina. John leases his retail outlet from Sam Smith a Chevron jobber. A TV station in North Carolina runs a story that the hurricane shut down 25% of the gasoline production in the U.S. Also, they remind viewers that your area is supplied by pipeline from the Gulf Coast. You, Don Dumbass, see that on TV. You grab Donna Dumbass, your wife, and the two of you and two of your kids head for John Doe’s station to top off the fleet. So do a bunch of your Dumbass neighbors. John is getting a run on gasoline. He calls his jobber, Sam Smith who tells him everyone is getting a run and he can’t promise you another delivery until next Wednesday. So, if you are John Doe, what do you do? You can run out today, since all the Dumbasses in town are coming in panic buying and if you run out and shut down you will have to send all your employees home. Employees who depend on their hourly wages and might quit, or you can try to dampen demand from the Dumbasses by raising prices. You go up 50 cents, but the Dumbasses keep coming. You go up another 50 cents, but the other competitive dealers on your corner keep raising their prices since they are getting the Dumbasses when you raise your price. All you want to do is to stop the Dumbasses from coming so you can stay open until Sam can get you some more gasoline. See how it goes?
So, when you hear the media and the sleazeballs on the media blame the oil companies for gas price gouging, remember it’s the Dumbasses who caused it. The moral of the story, don’t be a Dumbass. Don’t buy the crap you will hear in the next few days about who is price gouging. Don’t jump in your car and cause panic buying and unnecessary price escalation in your neighborhood. But, most of all remember this a somewhat due to the fact that your government and their good friends the environmental zealots have prevented new refineries from being built locally so you don’t have to depend on Texas for your gasoline.
Last, but not least, my friends and neighbors in Chicagoland, if your politicians like Mark Kirk, Richard Daly, Dick Durban, and Barack Obama had their way, the BP refinery in Whiting Indiana would close. These are the people who stopped the $3 billion dollar expansion that would have allowed BP to take Canadian crude and not depend on the Gulf Coast for crude supply. If BP throws in the towel, or the Gulf Coast has a more permanent disruption on foreign crude, you can be a Dumbass every day and experience panic buying and permanent gas price gouging since supply will be 60% of demand every day. Talk about Dumbasses, this group is tops on my list. Kirk is a wanna be Democrat, so when he is defeated this November, he can switch parties for the next try.
