Does a Valid Explanation Exist?

I got a call from my friend, Kevin Monday night. “You might want to go fill up your car, the gas prices are starting to go up.”

As of Sunday, many of the gas stations around Oklahoma were advertising $2.459/gallon.  By Monday evening when Kevin called me (after Hurricane Katrina had made land fall), most had already jumped up to $2.59/gallon.  This did not surprise me.  There are oil acquisition and production facilities in the Gulf of Mexico and Hurricane Katrina was bound to at least halt production until it passed.  Lower production=lower supply=higher price. I was already settled in for the night by the time Kevin called so I decided I’d just fill up in the morning.

When Tuesday morning came, gas was already up to $2.69/gallon.  I begrudgingly put just under $25.00 worth in to fill about half my tank, then went on with my daily business.  The price was steady when I left work at 5pm.

A couple of hours after dinner, I decided to leave the house and go for some hot fudge sundaes at the local ice cream shop.  As I rounded the corner, I saw the price of $2.79/gallon at the gas station next door.

As I went to work this morning, the price had risen yet again to $2.86/gallon.

Someone please tell me why the price jumped 40 cents (FORTY CENTS!!!) in 48 hours?  Does it really take that short of time for the storm to effect gas prices that much?  Is our domestic oil production and receipt of foreign oil that heavily tied to a single region? If so, why?

My understanding is that an announcement is due today that we will tap into the national oil reserves. Good. That is supposed to be held back for a rainy day and boy did it rain! But how long will it take for those reserves to ease the burden at the pump (if ever)? And if the land fall of a hurricane can effect the price so quickly, shouldn’t a release of the reserves also have a rapid effect?

I hear all sorts of wild stories about greedy oil companies but I really want to understand the economics of this.  Does a hurricane really have that much of an effect that quickly or is it greed? And, all joking aside, why does it take what seems like a matter of seconds for an increase in oil prices to change the price at the pump but a decrease takes at least a few days to show up?

If you have any answers for me, please post a comment, send me an email (jfusco at gmail dot com), or send me a URL.