Please buy gas!

This e-mail reprinted below, which is circulating incredibly widely, may represent a new low in economic thinking. It declares September 1st “No Gas Day.” I got three copies today. Still, I wasn’t going to blog about it, until I went on the web-search engine technorati and saw that all sorts of bloggers seem to be embracing the concept.

So here is the original e-mail:

IT HAS BEEN CALCULATED THAT IF EVERYONE IN THE UNITED STATES AND CANADA DID NOT PURCHASE A DROP OF GASOLINE FOR ONE DAY AND ALL AT THE SAME TIME, THE OIL COMPANIES WOULD CHOKE ON THEIR STOCKPILES.

AT THE SAME TIME IT WOULD HIT THE ENTIRE INDUSTRY WITH A NET LOSS OF OVER 4.6 BILLION DOLLARS WHICH AFFECTS THE BOTTOM LINES OF THE OIL COMPANIES.

THEREFORE SEPTEMBER 1ST HAS BEEN FORMALLY DECLARED “STICK IT TO THEM DAY” AND THE PEOPLE OF THESE TWO NATIONS SHOULD NOT BUY A SINGLE DROP OF GASOLINE THAT DAY.

THE ONLY WAY THIS CAN BE DONE IS IF YOU FORWARD THIS

E-MAIL TO AS MANY PEOPLE AS YOU CAN AND AS QUICKLY AS YOU CAN TO GET THE WORD OUT.

WAITING ON THE GOVERNMENT TO STEP IN AND CONTROL THE PRICES IS NOT GOING TO HAPPEN. WHAT HAPPENED TO THE REDUCTION AND CONTROL IN PRICES THAT THE ARAB NATIONS PROMISED TWO WEEKS AGO?

REMEMBER ONE THING, NOT ONLY IS THE PRICE OF GASOLINE GOING UP BUT AT THE SAME TIME AIRLINES ARE FORCED TO RAISE THEIR PRICES, TRUCKING COMPANIES ARE FORCED TO RAISE THEIR PRICES WHICH EFFECTS PRICES ON EVERYTHING THAT IS SHIPPED. THINGS LIKE FOOD, CLOTHING, BUILDING MATERIALS, MEDICAL SUPPLIES ETC. WHO PAYS IN THE END? WE DO!

WE CAN MAKE A DIFFERENCE. IF THEY DON’T GET THE MESSAGE AFTER ONE DAY, WE WILL DO IT AGAIN AND AGAIN.

SO DO YOUR PART AND SPREAD THE WORD. FORWARD THIS

EMAIL TO EVERYONE YOU KNOW. MARK YOUR CALENDARS AND MAKE SEPTEMBER 1ST A DAY THAT THE CITIZENS OF THE UNITED STATES AND CANADA SAY “ENOUGH IS ENOUGH”

Thanks and have a wonderful day :o}

Here is a (no doubt) partial list of totally idiotic mistakes in that e-mail:

1) If nobody buys gas today, but everybody drives the same amount, then it just means that we either had to buy more gas in anticipation of not buying any on September 1, or that we will buy more a few days later. So even if you believed this would take a $4.6 billion dollar bite out of the oil companies that day, consumers would hand it right back over. If this was “No Starbucks coffee day” it might have some chance of mattering, because people buy and drink Starbucks coffee the same day, so a foregone cup of coffee today may never be consumed. But this is not true of gasoline, especially if no one is being asked to reduce gas consumption. All you will get is longer lines at the pump the day after.

2) A one day total boycott of gas would not reduce oil company bottom lines by anything like $4.6 billion, even if it was accompanied by a one day moratorium on all gasoline use. Americans consume about 9 million barrels of gas a day. There are about 42 gallons in a barrel, so that equals 378 million gallons of gas sold a day in United States, or about one gallon per person. Toss in another 10% for Canada. At $3 a gallon, that is about $1.2 billion in revenues. Profit as a share of revenues in this industry is probably 5% or less, so the bottom line impact is a max of $60 million…about 1/100th of the stated number. And from point (1) above, even this is a gross exaggeration of the true impact.

3) One day of no purchasing of gasoline would certainly not cause the oil industry to choke on their stockpiles. Gasoline inventories in the US are typically about 200 million barrels, but right now they are on the low side — a big part of the reason why gas prices are high. 9 million extra barrels would create no problems whatsoever for stockpiles.

So everyone, please buy gas on September 1st.

And if you ever have the bright idea to circulate an email like this, at least tell people not to use gas, rather than not to buy gas.


Sukotto

Minor correction:
There are 42 gal of crude in an American Barrel.
Only 1/3 to 2/3 of that becomes auto fuel (based on the quality of the crude).

The Professor

An addition to sukotto's correction. It is correct that 1/3 to 2/3 of a barrel of oil becomes auto fuel. Only about 40% of THAT auto fuel goes to consumer driving. The rest goes towards commercial (shipping) driving. So consumer consumption only uses about 15-20% of an entire barrel of oil.

Anonymous

I have wondered, along a similar vein, what would happen if everyone kept their gastank under 1/2 full.

If we feel that gas is "too expensive" at, say, $2 gal, we refuse to fill up all the way. Would that cause the gas companies to cut prices? If I have a 12 gal tank, 6 gal multiplied by the quantity of cars on the road, that would seem to be a subtantial quantity of gas to store.

jackvinson

Here is the entry from About.com's Urban Legends and Folklore pages.
http://urbanlegends.about.com/library/bl_no_gas_sep_1st.htm

Anonymous

This is much discussed in urban legends circles. See, e.g., Snopes, urbanlegends.about.com, and alt.folklore.urban (1, 2).

peakguy

Again you seem to overly attack a minor mistake that the average person could make unless they have taken Econ 101 and until the very last line, you forget the intent. Voluntary reductions in consumption can cool price increases and this should be considered. Plus, it might be helpful if you point out to people that their complete dependence on gas is the cause of the higher gas prices. Could you please stop posting about oil and gas because you don't seem to have much to add to the subject aside from childish potshots from the cheap seats.

Anonymous

Actually, with Katrina having knocked out much, if not all, of the Gulf production, it seems a good idea not to buy gas unless absolutely necessary. Maybe with the prices, no one buys it any other way already! Oh, and Bush specifically asked that people stay of buying "nonessential" gas. And he has opened the National Fuel Reserve...

rini

PEAKGUY,

well said.

Steven D. Levitt

Sukotto and the professor --

Just to be clear, my number of
barrels of gasoline consumed was
actually gasoline, drawn from
the dept of energy website. It did
include all gasoline, including
commerical.

Steve levitt

Anonymous

I enjoy Levitt making fun of lunatic ideas backed up by ludicrous data.

peakguy

I enjoy watching oil dependent people complain about the "high" cost of gas. Little do they know how high it might get.

Dr. Levitt, could you at least post something useful to help people through this crisis, or would you rather keep taking sniper shots from your ivory tower at people trying to make a difference and reduce consumption. Or just stick to poker if you don't mind and leave the important stuff to people who care.

Anonymous

to guy above me:
I haven't heard a single useful thing to help people from you in this entire exchange.

peakguy

to anonymous (maybe reveal your identity?):

I said further up: "Voluntary reductions in consumption can cool price increases and this should be considered. Plus, it might be helpful if you point out to people that their complete dependence on gas is the cause of the higher gas prices."

I believe that we are in a short term supply crunch of domestic gasoline - voluntary reductions in usage could help smoothe out this rough patch and potentially give us better ways to reduce our dependence to oil (foreign or domestic). For more on my ideas, go to my blog: www.peakoilnyc.blogspot.com

Anonymous

Good post. After making your first comment, any additional justification isn't needed. That said, recent gross margins in the oil industry have been well above what you state. Just picking out XOM (an integrated firm, encompassing exploration through retailing), it looks like it's closer to 25% (you have to ignore the rest of the income statement to get the impact of a marginal change in sales).

Anonymous

In Freakonomics, the claim is made that it costs $25,000 a year to keep someone in prison. How much damage does one prisoner do? Maybe your average prisoner does only $1,000 yearly damage, so it makes more economic sense to shut all prisons and divert the money into an insurance fund.

Anonymous

In 'posted by Steven D. Levitt at 11:31 AM', why not boldface the author's name in addition to the time?
The author is more important than the time.

Anonymous

If abortion produces less crime, and assume that we value a human life at a million dollars for insurance payout purposes (I think this calculation was done in "Stiff" by Mary Roach when discussing airline accidents), then is the million dollars x aborted fetuses > amount of monetary damage done by the crimes? If so, a pro-lifer could argue that abortion is economically bad for a society.

Anonymous

It seems to me your text implies that abortion must be a good thing, because most of the fetuses it kills are bad, i.e. likely to commit crimes. Sort of like pruning a rose bush.

Saar Drimer

Dear anonymous users,
please use a pseudo-name, alias, or some unique made up name so it is easy to tell you all apart and address you individualy... makes sense, no?

Anonymous

One guess as to where Madison as a girl's name came from is the TV show Moonlighting, where Cybill Shepherd played "Maddie" (Madelyn) Hayes.