More Panic

From Fortune on CNN-Money a report on Gas shortages: get ready for more

NEW YORK (Fortune) — While Congress and Bush administration officials have been working to complete a bailout plan and stem the financial contagion on Wall Street, a different kind of economic crisis emerged across the South this week: A severe, hurricane-related gasoline shortage has curtailed trucking from Atlanta to Asheville, N.C., and created a wave of panic buying among motorists.

The return of gas lines has largely flown under the radar of politicians who are usually keenly attuned, because their constituents are, to what’s going on at the pump. But more of the Capitol gang should be paying attention to this.

This was totally predictable, only the response is unreasonable. People are panic buying and the system won’t respond when that happens. Gasoline deliveries are scheduled, they aren’t a response to any particular trigger. If you get a Tuesday delivery, the truck is there on Tuesday and fills your tank. When people rush in to keep topping off their tanks, and bring along gas cans to buy even more, stations run out before their delivery date.

Supply is down because refineries were off-line due to Gustav and Ike. The pipelines to the refineries were also shut down. You don’t just turn these systems on and off with a switch. Until the refinery is ready, you don’t start pumping oil into the pipeline. About 20% of the refinery capacity of the US was affected, so there will be spot shortages, but the panic reaction of people is making those shortages worse.

Of course, this is also a problem with “Just In Time” inventory control, because the deliveries are scheduled to reduce deliveries to an absolute minimum. So if a station normally didn’t sell enough gas to require weekly deliveries, it didn’t get them.