Gasoline Prices Held to Short-Term Spike After Harvey
Fri Sep 1, 2017
Refinery and pipeline shutdowns in anticipation of Hurricane Harvey spurred a short-term holiday-weekend spike, but minimal damage to infrastructure means prices could return to normal by mid to late September.
Hurricane Harvey spared refineries in Corpus Christie and Houston, for the most part. Even though the Category-4 hurricane caused widespread damage in the area, it does not appear that the autumn's supply of gasoline will be affected, according to the American Automobile Association (AAA).
The national average price of gasoline on Thursday was $2.45 per gallon, according to AAA surveys. While this price is the highest recorded price for a gallon of unleaded gasoline so far this year, it is a moderate increase compared to what many had feared. After Hurricane Katrina made landfall on the Gulf Coast of the United States 12 years ago, gasoline prices spiked because offshore oil platforms had been unmoored, the national pipeline network had been damaged, and refineries had been inundated.
Not so with Hurricane Harvey. Prior to the storm, several measures were taken to minimize risk of damage to the national gasoline-distribution systems. Numerous refineries and pipelines shut down before the storm made landfall. Gasoline suppliers tightened access to the current levels. When Hurricane Harvey made landfall, many stations and depots had already stocked up anticipating a high demand for the Labor Day weekend.
As a result of these circumstances, the spike in gasoline prices had been muted, AAA says.
“Consumers will see a short-term spike in the coming weeks with gas prices likely topping $2.50 per gallon but quickly dropping by mid- to late September,” said Jeanette Casselano, AAA spokesperson. “AAA does not expect refineries to be offline for months, as early reports indicate minimal to no significant damage to Corpus Christi and Houston refineries.”
However, AAA expects to see a "dramatic but brief" spike in prices as far away as the Northeast United States due to the shutdown of facilities in and along the Gulf of Mexico, weather effects on the pipelines, and the typical demand of the holiday weekend. Potentially, the short-term spike could be "a double-digit" increase, according to AAA.
“Consumers should expect to see the highest Labor Day prices at the pump since 2014,” said AAA club spokesman Josh Carrasco in a release. “We expect the national average to top $2.50 per gallon.”
Officials and oil companies will be watching developments in the days ahead, as damage reports from refineries in Corpus Christie and Houston areas will offer more insight into how long total recovery and restoration efforts may take.
Harvey has set a record for the greatest amount of single-storm rainfall for the continental U.S. Through Friday, the storm continues to threaten heavy rain to parts of Louisiana and eastern Texas (3 to 6 inches), and even move into western Kentucky (10 inches). In the Houston-Galveston area, flooding, not rain, is now the concern.
“The storm has had a devastating effect on the lives of so many,” said Marshall Doney, President and CEO, AAA. “Our regional AAA are working around the clock in Texas and in other affected areas to help our members in need, and our thoughts are with all of those impacted by this storm.”
AAA reported the national average price of gas is $2.519 per gallon as of September 1 at 3:41 a.m. Eastern Time.
Gulf Coast Refinery and Pipeline Status
As of Wednesday evening, the Department of Energy (DOE) is reporting that 10 Gulf Coast refineries remain shut down. Six refineries have begun the process of assessing damage and restarting, which may take several days. Two refineries in the Gulf Coast region are operating at reduced rates. Refineries in Lake Charles, Louisana, could shut or reduce rates as Harvey moves east. Additionally, DOE released 500,000 barrels of oil from the U.S. Strategic Petroleum Reserve — the nation’s reserve of crude oil. The oil will be delivered via pipeline to the Phillips 66 refinery in Westlake, Louisiana. According to DOE, it will continue to review incoming requests for oil in the reserve, meaning that it could release more if deemed necessary.
In addition to refinery shut downs, several major pipelines continue to operate at reduced rates, have shut down or plan to shut down due to lack of supply. The Colonial Pipeline announced Wednesday evening it expects to temporarily suspend its gasoline, diesel and jet fuel pipelines. With its supplying refineries closed in the area, the pipeline operator cited reduced output as the reason for suspending its transportation operations. The Pipeline originates in Houston and supplies the East Coast.
“The shut downs do not indicate a shortage of gasoline supplies in the Gulf Coast region or across the country,” says Casselano. “These are preventative measures. Overall stocks in the Gulf are above average levels and will be available to drivers once power is restored and area roads are cleared.”
Refinery, pipeline and logistical problems on the Gulf Coast are expected to squeeze fuel supply delivery volumes to the Southeast, Midwest and Mid-Atlantic.
“Northeast refiners are stepping in and barging supplies to the U.S. Southeast, the Caribbean, Mexico and South America to offset the lack of supply from Gulf Coast refineries and pipelines shut down due to Harvey,” added Casselano.
To help alleviate concerns about fuel supply shortages as a result of the refinery and logistics issues in the Gulf Coast, on Wednesday the Environmental Protection Agency (EPA) issued a waiver requirement for low volatility conventional gasoline and Reformulated Gasoline (RFG) in 12 states: Alabama, Florida, Georgia, Kentucky, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Texas, Louisiana, and the District of Columbia. With the waiver, retailers in the aforementioned states are allowed to sell “winter blend” gasoline early.