A Gasoline Shortage Despite Plenty of Fuel

Across southern California, gas pumps are closed for business. Bloomberg reported last week that rationing and a spike in wholesale prices have left gas station owners, especially independent ones, scrambling to eke out a profit as the price per gallon approaches the $5 mark.

John Ravi, owner of a gas station located 30 miles outside Los Angeles, told Bloomberg, “I can get gas, but it’s going to cost me $4.90 a gallon, and I can’t sell it here for $5.” Instead, he’s just putting “out of gas” signs on his pumps as he sells down what supply he has on hand.

For motorists of a certain age, the situation brings back unwelcome memories of the 1970s, with its shortages and long lines at the pump. Yet unlike that period, nationally the U.S. is flush with fuel. American crude oil production is at its highest level in years. As of 2011, we’re actually a net exporter of refined gasoline and diesel for the first time since 1949. So why are gas stations in California shutting down for lack of supply?

The simple answer: This is what happens when a once national market for a product is shattered into over a dozen regional markets.

There are currently 18 different gasoline formulas required in different areas of the country. Though gas faces a variety of specific factors that affect supply and demand depending on the state and region, including varying fees and taxes, it’s the formula differences that pose the biggest problem in a situation like the one California currently faces.

Even if there were pipelines that could bring gas to California from other states, California retailers could not legally sell it, since it would not meet regulatory standards. Nor can gas stations in southern California simply truck down supplies from the Bay Area, where gas is currently expensive but still sellable, since northern Californian merchants are already selling winter-grade gas, while retailers in the southern part of the state are required to sell summer grade until October 31. The state has been slow to issue a waiver that would allow winter-grade gas to get the L.A. area through the crisis.

Are there reasons behind all the requirements for customized gasoline in different micromarkets in the country? Absolutely. California, with its huge concentration of cars and its related serious air pollution problems, has better reasons than most.

But every decision has its costs as well as its benefits. The failure to standardize a reasonably effective product across the country carries the cost of making customers rely on small batches of customized gasoline that are expensive to produce and susceptible to supply disruptions. Broader national or regional formulas would create a more robust market that would be less vulnerable to interruption and could help get a handle on prices in markets like southern California, where they are currently out of control.

We need to come up with a more thoughtful approach to how we make and market fuel in this country.

About Larry M. Elkin 553 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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