With miles of cars lined up for fuel after superstorm Sandy, it may come as a surprise that gas prices are actually down. John Hofmeister, former CEO of Shell Oil and founder of Citizens for Affordable Energy, explains why.
In the wake of Superstorm Sandy, there are long lines at the pumps in the Northeast, but gas prices are actually down an average 21 cents a gallon nationwide over the past two weeks. Sometimes it is tough to square images of the extended queues of people waiting for gas with prices on the sign at your local gas station.
Will gas prices rise for the rest of America because of Sandy?
To get at the answers and the big picture, TODAY had the former CEO of Shell Energy, John Hofmeister, currently CEO of Citizens for Affordable Energy, on the show to break it down.
The burning question: Why such a big drop in gas prices? Sandy was a major event for the many lives it took, devastated and changed. In terms of the gas market, though, there are bigger, longer-trending forces at work. The big one is seasonal demand. This time of year, for many months in a row, there is less driving in general. That pushes down prices across the board.
On top of that, looking out into the next year and beyond, it doesn't look like there's going to be a big ramp-up in demand for fuel use any time soon. That also keeps a thumb on the price of filling up at the pump.
Hold on a second, though: Prices shot up after Katrina. Why isn't the same thing happening with this major, devastating weather event? For one, Hurricane Katrina hit the oil-producing Gulf Coast, hitting production facilities and refineries with sustained damaging wind and water.
The wind didn't last as long and wasn't as destructive in the Northeast, and didn't hit a major supply center for the country. Pipelines and supply routes were disrupted on the East Coast, but that's more about delivery. That isn't as much of a factor on national gas prices as having the supply get impacted.
What about the long gas lines? How much longer will they last?
It all depends on when full power is restored, said Hofmeister. After that, it should take about five days for drivers to get resupplied and get demand back to normal.
It's that spike in demand that's the big factor right now.
"Odd-even was a good decision, because it reduces demand by mandate," said Hofmeister, referring to the gas-rationing ordered by New Jersey Gov. Chris Christie. Under the policy New Jersey gas stations can only sell gas to license plates ending in an even number on even days of the month and to odd numbers on odd days of the month.
"Fear drives the long lines," said Hofmeister. "Fear (that) when you need gas there won't be any. The drivers put excess demand on a system that is undersupplied."
As power comes back on, people finish digging out their homes and supplies return, that fear is likely to abate, and along with it, the lines at the pump.
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