The flooding has completely or partially shut down 13 refineries, erasing more than 10 percent — about 2 million barrels a day — of U.S. gasoline production capacity.
“Gas prices will go up,” said Patrick DeHaan, a senior petroleum analyst with GasBuddy, which provides retail fuel pricing information. “The national average will rise 5 to 15 cents a gallon over the next two weeks. It’s up a penny already since yesterday. Areas of the Gulf of Mexico will see prices go up between 20 and 35 cents. “
The national average price for a gallon of gasoline measured across 150,000 service stations is $2.38, DeHaan said. Gasoline prices jumped 40 cents in the wake of Hurricane Katrina, which struck New Orleans in 2005.
Things could get worse if the storm makes its way east along the Gulf Coast, to New Orleans. The coastal swath from Corpus Christi to New Orleans is one of the most industrialized petroleum regions in the world. One-third of the U.S. refining capacity is based there.
“Oil prices are going down, and the kink in the hose is the refinery,” DeHaan said. “If you have no refinery, you got no gasoline, no jet fuel, no diesel fuel.”
DeHaan said eight of those refineries were shut down and another five or so were partially shut down. Refiners still open are running like mad to close the gasoline deficit and the higher prices that come with that demand.
Low oil prices and a gasoline shortage create a sweet spot for refiners – known in the industry as “the crack spread” — that has widened in the aftermath of Harvey.
“If you are a refiner, you are pretty happy,“ DeHaan said. “Refiners not affected by Harvey are probably turning out supplies as best they can. They are seeing the highest crack spreads of the year.”
Before Harvey hit, gasoline prices had been heading lower as they do toward the end of every summer, thanks largely to an over abundance of gasoline stockpiled for summer drivers.
That overhang usually gets burned off in early fall, barring a wildcard like a hurricane.
“We were cruising into fall with gas prices declining, and the only reason that is interrupted is geopolitical tensions and hurricane season,” DeHaan said. “It’s always a caveat. The eight-ball can’t predict geopolitics and hurricanes.”
The gasoline shortage arrives even though U.S. crude oil production remains near historic highs at more than 9 million barrels of oil a day. That has contributed to a worldwide glut that has tamped down crude prices — and the profits at big oil producers. Lower profits have translated into lower stock prices for oil supermajors such as Chevron, Exxon and BP.
Crude oil prices were down slightly Tuesday, hovering around $46 per barrel. The price threatened to go below $40 earlier this summer. That’s compared to more than $100 per barrel just three years ago.
Some of that oil, temporarily at least, has nowhere to go because of the refinery shutdowns. It may be shipped overseas for refining.
“While U.S. refining capabilities are currently diminished, overseas refiners can pick up some of the slack,” said Pavel Molchanov, an energy analyst at the investment firm Raymond James. “This is what happened after Katrina in 2005.”
Molchanov said the crude oil prices will be unaffected by the hurricane over the long run.
“The fear is that oil demand will be weakened,” Mochanov said. “But this is a misconception. Weather-related disruptions such as these are immaterial over the long run for oil market fundamentals.”
DeHaan said gasoline prices at the pump will eventually recede, but not before the flood waters tell the full story.
“Once we see how much damage there is when the water recedes,” DeHaan said, “that will be directly proportionate to how long prices stay elevated.”