After every natural disaster, gasoline prices invariably rise (see chart below for the most recent example). Although prices always start to fall back as the cleanup gets under way and refineries that were temporarily closed are reopened, Congress inevitably holds public hearings to assess blame. We can expect the same to happen in the wake of Hurricane Harvey, the monster storm that flooded large parts of the Houston area, and Hurricane Irma, with its brutal winds and torrential rains headed toward Florida.
The fact that the price of gasoline and other refinery products has already increased after the Houston flood should hardly come as a surprise. Given the ferocity of Hurricane Harvey, no part of the energy supply system in the Gulf region was spared.
As floodwaters rose, major refineries were shut down, the flow of petroleum through the 5,200-mile Colonial Pipeline from Texas to New Jersey was disrupted, port facilities were closed to oil tankers, river barges and railroads were unable to make deliveries, and trucks couldn't reach service stations. Uncertainty over the lasting damage added to the disarray. Taking a refinery off-line and then restarting it is a complex operation involving highly-sophisticated systems in which safety is paramount. This recovery will take weeks, possibly months.
Since the Texas Gulf Coast is home to about 30 percent of U.S. refining capacity, and many of the refineries in the Houston/Galveston and Beaumont/Port Arthur areas were shut down or their operations curtailed, the effect on gasoline prices was felt almost immediately and spread quickly across the entire country.
And there's no telling what effect Hurricane Irma might have on Florida and the Atlantic seaboard.
We know that big storms and other major weather events can impact energy prices, potentially resulting in significant price swings. When the price of gasoline and other oil products rise sharply, there is little chance of any major oil company escaping accusations that it's engaged in price manipulation or even price-gouging. Interestingly, there have been more than 30 government investigations of the natural gas and oil industry, including one by the Federal Trade Commission after Hurricane Katrina, and they all determined there had been no systemic price-gouging at the pump.
Why then are there demands for more investigations?
Part of the explanation is that far too many people have been taken in by the cult of mistrust, by the belief that Big Oil, not lack of preparedness for natural disasters, is the clear and present danger, and that Congressional hearings will somehow show that oil companies have engaged in some type of malfeasance.
In other words, the straight economics of gasoline pricing suggests that we don't need a false or distorted political view of the situation. Congress should focus its attention instead on disaster relief or the need for improvements in the nation's infrastructure or overly-restrictive energy regulations.
Of course, that's not the way these choices are portrayed by politicians. But that's what it really comes down to. To those who are long on outrage and short on economics it might seem like nefarious forces are at work when oil and gas prices rise following natural disasters. But the economic reality is that it's only the impersonal market forces of supply and demand, especially a temporary decline in the supply of oil and gas, that are behind the recent rise in energy prices.
The time is long past due to put the matter of gasoline pricing after hurricanes and the frequent claims of manipulation to rest.
Mark J. Perry (@Mark_J_Perry) is a contributor to the Washington Examiner's Beltway Confidential blog. He is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan's Flint campus.
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