By Keith Reid
As I noted in a previous policy brief following Hurricane Harvey price gouging is in the news once again. That piece contains a general discussion of how price gouging accusations have played out primarily in the early- to mid-2000s the industry entered an era of a Balkanized fuel supply, tighter inventories and an overall increase in price volatility that has only recently died down following various commodity reforms and the amazing supply dynamics brought about by fracking. While there is no need to cover the all of the same ground here, Hurricane Irma with its broad impact over multiple states further intensified gouging sensitivities.
With a primary focus on Florida, price gouging complaints rolled in by the hundreds and then thousands as the crisis intensified. The complaints focused on a great number of goods and services, with airline prices getting special attention. Fuel, of course, found itself prominently in the mix. As I covered in Policy Brief: Price Gouging Once Again price gouging investigations at the federal level have generally determined that while such practices do exist they tend to be uncommon among petroleum retailers, and most price movement tends to be a reflection of wholesale pricing and supply dynamics.
In Florida, during a state of emergency retailers are advised not to grossly raise their prices beyond the pricing history for that product over the past 30 days. However, they are allowed to defend such increases based upon market factors.
The EIA’s This Week in Petroleum (Sept. 13) outlined the extent and reason of the retail price increases in the market: Because Florida is largely dependent on marine movements from refineries of the U.S. Gulf Coast, any threat of or actual disruption to that supply, such as Hurricane Harvey, will result in higher prices in Florida markets. From August 21 to August 28, when Hurricane Harvey made landfall in Texas, the retail gasoline prices in Florida and Miami increased 10 cents and 5 cents per gallon (gal), respectively. Then as Hurricane Irma approached, increased demand and falling inventories caused Florida and Miami gasoline prices to increase $0.40/gal and $0.39/gal, respectively, between August 28 and September 4.
The demand aspect on supply was also particularly active during Irma, as the usual consumer hoarding impulses were additionally driven by what amounted to a call to evacuate much of the state. Matching and perhaps even eclipsing price gouging accusations were the reports of stations that had ran out of gasoline. This reinforces the idea that by not allowing a market to adjust more aggressively to shortages, or having some form of government sales volume control, a gallon of expensive gasoline can be worth far more than no gasoline for somebody desperately trying to leave the danger area.
Retail prices tended to average in the $2.70 set range throughout the crisis, though there were reports of some stations charging $4 or higher. Much higher in a few cases.
Given that such disasters typically hit retailers just as hard as their customers, such extraordinary pricing might be an attempt to profiteer on the situation (though obviously at the expense of potential price gouging lawsuits and brand damage) or it could easily be more marginal operations desperately trying to stay in business.
In a release made available on Business Wire GasBuddy.com commented on price gouging in a press release aim to promote its consumer app and a newly launched “price gouging” reporting feature. The release titled “GasBuddy Warns Motorists of Unusually High Prices at Some Gas Stations in Affected Areas In Wake of Hurricanes Harvey, Irma” by and large confirmed that events that would typically be considered price gouging were few and far between. However, citing that between 24% and 20% of the stations in impacted states were $0.20 or more above the average state price for gasoline gas Buddy analyst Patrick DeHaan suggested a notable underlying degree of profit-taking by the industry.
“Our data shows that while price gouging has taken place in the affected areas, it’s on a fairly limited basis,” said Patrick DeHaan, a senior petroleum analyst at GasBuddy. “That’s the good news. What we are seeing is tantamount to ‘death by a thousand paper cuts.’ Which is to say, stations are taking advantage of the current state of supply and demand, driven by life-threatening circumstances, to raise prices in a more imperceptible way that’s still adverse to motorists, particularly in these dire circumstances.”
Another interpretation might be that no state has a uniform market environment and such low-level price discrepancies could easily be explained by the particular supply dynamics for the sites in question. That’s particularly the case in a highly disruptive natural disaster.
