James Hamilton has done the back of the envelope calculation to show that in the pasat two weeks, gasoline demand has plummeted, both relative to trend and relative to last year. His graph showing the effect is striking.
Professor Hamilton points out that this decrease in demand is one of the reasons why futures prices have returned to pre-Katrina levels, and why the storm hasn’t had more of a prolonged effect on prices.
Retail price fluctuations had their predicted effect; they reduced consumption to cushion and absorb the unanticipated supply shock. How about that?