Hurricane Update: Three things you need to know about claims of fuel price gouging

Mark Green
Posted September 8, 2017

With Hurricane Irma threatening Florida, here are three things you need to know related to claims of fuel price gouging:

1.       Industry Does Not Condone Price Gouging

No one supports anyone taking advantage of people dealing with a national crisis. Using an emergency like a hurricane as an opportunity to unreasonably increase prices of petroleum products – or other important commodities like bottled water, bread or other food – is wrong. Since Hurricane Harvey reached the Texas-Louisiana Gulf Coast and now with Irma nearing Florida, companies have urged consumers who have gouging claims to contact state authorities.  Each state defines gouging a little differently and the facts and circumstances of each allegation vary and should be thoroughly investigated.

2.       Gasoline Stations are largely owned by mom-and-pop retailers

The overwhelming majority of stations are owned by independent, mom-and-pop retailers – about 60 percent of all gasoline stations are owned by a single store operator. Pricing decisions by owners of individual service stations – 97 percent of existing gasoline stations are independently owned (not owned by a refiner) – are influenced by supply-and-demand influences in the supply chain above them. They must manage replacement costs for the next tank of fuel that could be nearly 9,000 gallons, which means keeping their street prices competitive and ensuring sufficient cash flow to buy that next tank full.

3.       Supply and Demand Influences Prices

As we’ve discussed (see: “Supply, Demand and Gasoline Markets” and “Price Impacts and the Need for Patience, Consideration”), the complex oil supply chain that culminates with finished gasoline reaching retail outlets is subject to the market influences of supply and demand.  Historically, major disruptions and constrictions in the supply chain, like hurricanes, have led to upward pressure on prices for limited periods of time. Storms can force infrastructure, such as refineries, to be temporarily out of service, limiting supplies. They also can restrict normal transportation modes, requiring the use of alternatives that are more expensive. The industry’s focus is on getting supplies to where consumers need them even if it costs them more to get there.

Historically, these impacts reach the retailers who set the pump prices at their stations. These have to be set to be competitive in their local market and also must take into consideration the need to pay for the next delivery of gasoline to fill their station’s tanks. In the past, if supply was seen as dropping relative to demand, this has put upward pressure on price and figured into retailers’ pricing decisions.  Industry and state and federal officials have worked to ensure that Florida’s fuel inventories are high enough to keep the state well-supplied once Irma passes: bringing more fuel to the state, working with suppliers to shift fuel from areas that have excess product to areas where it’s needed for evacuations and other emergency activities, waiving certain restrictions and regulations to expedite the ability of fuel trucks to deliver product to stations.

Bottom line: It’s important to be mindful of the impacts to the market of supply disruptions and increased demand that could impact prices.  But that’s different than taking advantage of a crisis.