<Our Insider and Rigzone say the damage is bad...but the question is how bad?The Oil DrumFiscal Unsustainability>

39 comments on Another picture that tells a story

Comments can no longer be added to this story.

Stuart Staniford on September 27, 2005 - 2:46am Permalink | Subthread | Parent | Comments top
I guess this actually makes a lot of sense looked at under an efficient market hypothesis. Stocks have reached the bottom of the band and then a bunch of refineries get wiped out. The market, well aware that stocks are low, freaks and the price goes through the roof. The market gets subsequent stock reports and sees that the price is high enough to start to finally have some impact on consumption; the price starts to drift down.
0
Comments can no longer be added to this story.
Sealth on September 27, 2005 - 2:55am Permalink | Subthread | Parent | Comments top
Another possibility is that consumption didn't respond much to price but did respond to the fact that a million or so (very rough guesstimate) vehicles were suddenly taken off the road, and this being the deep South, that they were on average large fuel hogs, even for our country which is addicted to fuel hogs. If the average vehicle gets 20 mpg, is driven 300 miles per week, and their are a million of them out of service, that is a demand reduction of (1 million)*(300/20)/42=almost a third of a million barrels per week.
0
Comments can no longer be added to this story.
Stuart Staniford on September 27, 2005 - 3:05am Permalink | Subthread | Parent | Comments top
Well, but they aren't off the road, are they? They're driving back and forth between NO and Baton Rouge...
0
Comments can no longer be added to this story.
Sealth on September 27, 2005 - 3:11am Permalink | Subthread | Parent | Comments top
So which are there more of? The ones submerged in New Orleans or the ones driving back and forth into the disaster zone. Additionally, upwards of half a million people are no longer commuting because they have no job.

Another question is how we measure the inventory levels. I doubt that gas in one's gas tank is counted, so the sudden dip and rebound could be explained by everybody panicing and topping off the week before Katrina hit and then not buying the following week. This is, admittedly, a short term effect, but it might explain some of this.

FWIW, I am not looking at inventory or production or consumption numbers too closely at the moment because I think that the data is suspect (at best) due to the chaos on the Gulf Coast. I rather expect the numbers will all make a lot more sense around November (barring any further shocks or chaos, of course ... my own personal force majeure clause).

0
Comments can no longer be added to this story.
louGrinzo on September 27, 2005 - 9:49am Permalink | Subthread | Parent | Comments top
Bingo! Gasoline demand is price inelastic in the short run, but it's not perfectly inelastic.

(The definition of elasticity is based on the ratio of the percentage change in demand to the percentage change in price. A ratio greater than one is elastic, a ratio less than one is inelastic. A ratio of zero (price changes but demand doesn't budge) is perfect inelasticity.)

0
Comments can no longer be added to this story.
Stuart Staniford on September 27, 2005 - 1:14pm Permalink | Subthread | Parent | Comments top
Econbrowser had some relevant discussion a little while back. Seems to me like there might be certain psychological points where a price increase has more impact on demand than others. If it's creeping up and creeping up, people complain a little bit but don't really take much action other than not spending the money on other things that they had to spend on gasoline. But then, when it hits $3, it causes people to sit up and go "Holy s**t", and really make some change that has a significant effect on their usage.
0
Comments can no longer be added to this story.