The biggest component in the cost of a gallon of gas is the price of crude oil. When oil prices rise, the cost of gas rises soon after. During periods when oil prices decline, the price of gas declines at a slower pace. This is a normal market phenomenon and understood by economists as part of the consumer petroleum market.
Another factor in the cost of gas is supply distribution options available in a particular region. The cost at the pump is generally higher the farther away the gas originates, be it a refinery, pipeline, port or terminal. During times of supply shutdowns- let’s say when a major storm hits- communities with the most robust transportation networks have the capacity to use alternative modes of transport to limit the resulting cost increase.
This sort of municipal logistical flexibility helps insulate a supply disruption that may otherwise cause the price of gas (and home heating oil) to rise- and hit the finances of millions of our neighbors.
I’ve included an insightful Chicago Booth research article on the affects that a storm has on the price of gas in different regions of the country. Read how a city like Miami, with no pipeline connection and in a hurricane corridor, does not see major price changes, even after a severe storm. This research could be used to help communities reduce the impact that catastrophic events have on the price of oil and gas.
What are your thoughts? Let me know what you think! Click here to send me an email.
~ Brian Kasal- The Leadership Matrix
P.S.- Did you see my last Leadership Matrix post? A Ripple Effect- Rate Hikes May Worsen Labor Market Inequality