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MENDOZA IN THE NEWS

Should drivers stock up on gas? Experts say no -- it'll backfire

Finance Professor Tim Loughran is quoted in this article

by Norm Heikens
Publication: Indianapolis Star

September 23, 2005

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John Smith usually fills only one of the two tanks in his Ford pickup, but with Hurricane Rita bearing down on the Gulf of Mexico refineries Thursday, he filled both to the brim for $90.55.

The Beech Grove house framing contractor said he figures the hurricane damage will push gasoline prices up a dollar a gallon within a few days, meaning he could save $40.

"Every last bit helps," Smith said, alternately watching the nozzle and the dollars and cents add up at a pump at a Southwestside Marathon station. "It makes sense."

Experts say gas prices could rocket above $4 a gallon, and oil refiners hope consumers won't worsen already-tight supplies by filling tanks like they did during Katrina, when demand shot up as much as five-fold at some locations, said Marathon Petroleum Co. spokeswoman Linda Casey.

Not since the Sept. 11, 2001, terrorist attacks had Casey seen such hoarding, she said.

Prices at stations in the Indianapolis area jumped above $3 a gallon as supplies tightened after Katrina hit, although Casey said it's too early to know whether Rita will cause the same problems.

"If people will just act conservatively, fill up only when you need to, they'll be OK," Casey said. Drivers eager to fill up lined up three cars deep throughout the day at the pumps at the BP Amoco at 52nd Street and Keystone Avenue, said Steve Cunningham, an employee.

That station was able to meet demand; two other BP stations in Indianapolis reported Thursday evening they had run out of gas.

A BP Amoco at 9235 E. 56th St. ran out of gas at 6 p.m., and its manager did not know when more would come in.

A BP Connect at 8045 S. Meridian St. ran out of fuel at 7 p.m. and expected a delivery at 11 p.m. Thursday at the earliest.

National City Bank chief economist Richard DeKaser expects Rita to elicit behavior from consumers similar to what Katrina did. They'll save less money and keep spending on gas.

Motorists spent so much on gas in August that the nation's consumer savings rate dipped into the red, DeKaser said. September figures could reveal the same, he said.

That's understandable, say some academics who study how people react when faced with scarcity.

University of Notre Dame finance Professor Tim Loughran said a fear of running out of gas overrules restraint that normally follows high prices.

Similarly, Indiana University psychologist Ed Hirt said, "The natural thing is to panic."

Hirt said he suspects consumers will anticipate shortages and high prices from Rita and hoard, though possibly with less intensity after having seen prices drop quickly after Katrina ended.

Does Hirt, an expert in how people make decisions amid uncertainty, plan to top off his Nissan Quest minivan? "I don't know," he said.

Scot Imus, executive director of the Indiana Petroleum Marketers and Convenience Store Association, a trade group of convenience store operators and fuel haulers, said he hasn't heard of long lines forming at stations.

But he won't be surprised if consumers begin to hoard gasoline.

"At a time supply was critical, it probably hurts consumers more than it helped consumers," Imus said.

Like Smith, the contractor driving a Ford pickup, Angie Fancher, Southport, filled her Ford Contour sedan Thursday. On typical trips to gas stations she puts in half a tank, but not with Rita threatening supplies.

"At $2.69, yup, I'm filling it up," Fancher said.