Government could buy emergency petroleum reserve as futures

Many are commenting on the gasoline shortages and price increases involved with hurricane evacuation and other emergencies. Some people can't get gas to get out of the city. Others full up giant tanks even when they don't need it. Stations raise prices as supply drops and demand increases, as per the normal rules of the market. Some suggest the stations be price-controlled to stop this, but that would only result in even more gas hoarding by the public.

The government could instead have a strategic emergency gasoline reserve. However, it need not keep this reserve in tanks, it could "keep" it in the storage tanks of all the private gas stations, by arranging a special emergency-based futures contract with the station owners, in advance. Not all stations need participate, as long as enough gas for evacuation can be reserved.

During the emergency, it would be calculated how much fuel will be needed per vehicle. Each station would provide that much fuel to each vehicle. The simplest way to do this is to devise some long-lasting mark that will last at least a few days to a week, and for each station to put it on a car after delivering the fuel. Perhaps something as simple as a sharpie mark or other semi-permanent mark on the gas cap. This is unfair in that people with multiple cars could get extra fuel, but other systems, like vouchers and databases have their own problems. Vouchers would be lost or sold on the black market, unfortunately.

Any fuel over and above the contracted amount could be sold at market prices to those who want more fuel and/or wish to hoard. Probably quite high market prices. Fuel tankers could also be arranged to resupply stations with emergency reserve needs. Note that the customers could still pay a normal price for the reserve gas, reducing the cost of the contract. They would also sign a voucher at the station, on which random audits could later be done to confirm compliance. Stations would contract to deliver based on the minimum reserve they keep in their own tanks. There could also be a true reserve in government owned tankers to cover the slop factor.


Why is this an improvement over letting prices freely adjust to equalize supply and demand?

Here's an alternative proposal: legalize gouging and legalize travel /into/ the disaster region. Make it abundantly clear that nobody will be accused of a crime for selling gasoline at "too high" a price. The first thing that will happen is all those "giant tanks" empty again to meet the demand. Then we can watch people in nearby cities and states truck gas in to sell the moment it seems like a possible profit opportunity.

It's an improvement because it makes it possible for the government to maintain a spatially distributed reserve that can be trivially accessed without building any infrastructure beyond the tracking one. It's clever in several ways:

  • if the amount of gas available for each vehicle is sufficient to permit people to not have to worry about where they will get the gas to evacuate when it becomes necessary, it will dramatically reduce the amount of panic buying that will occur. This will then help ease the shortages and the whining about gouging.
  • if enough stations participate and their locations are well-known in advance, it should improve the ease of evacuating because lots of people will be able to get gas at many locations all at once.

I agree with you that in general, the complaints that we hear about price gouging are ill-informed and counterproductive. Note that the initial proposal specifically allowed the price of non-reserved gas to float with the market.

There is certainly room for discussion (in another forum) of whether this is an appropriate use of government money. I would agree with Brad that this is an interesting idea for a way to ameliorate emergency troubles.

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