Brad Delong cites Hal Varian on why gas prices rise on the news of a potential oil supply contraint:
To spell out the argument, imagine that you own a storage tank full of gasoline that is currently worth $2 a gallon at wholesale prices. It is widely believed, however, that the price of gasoline will be $2.10 next week. You would be crazy to sell your gasoline now: just wait a few days and the higher price will be yours. But if everyone waits a few days, there is no gasoline to be sold now and the resulting shortage pushes the price of gasoline up. How high does it have to go? The answer is $2.10 a gallon. That is the price necessary to induce those who have gasoline to sell it now rather than to wait till next week.
This argument does not depend on whether you think the gasoline market is a paragon of perfect competition or an evil oligopoly. All it requires is that you believe that people who own gasoline, like just about everybody with something to sell, prefer to receive a higher price rather than a lower price. Even if the price of gasoline were set by a perfectly benevolent conservationist, we would expect to see the same pattern of price movements. If oil will be scarcer in the future because of the BP pipeline shutdown, we would want to conserve the already-produced gasoline that we have now. That means that the price of gasoline has to rise right away to prevent hoarding and to encourage conservation.
When the US went to war in Gulf War I, prices spiked immediately. Reading the Wall Street Journal at the time, the well-fed pundits on their editorial pages proclaimed that the reason was replacement cost: if you sell a gallon of gas for $1 today and you will need $1.50 to replace it, you need to charge that much today.
/me scratches head and wonders where the risk in capitalism enters into this equation: it’s not like I am reserving or putting on layaway a gallon of $1.50 gasoline. In the WSJ scenario, I pay whatever you think the goods are likely to cost next week for goods I consume today, in effect subsidizing or removing any risk from your business.
Professor Varian’s explanation makes a lot more sense. And the idiots on the WSJ editorial pages were clueless even then.