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Aug 28, 2017 | Fuel
As Hurricane Harvey blasted Texas, gas prices shot up across the country. At $2.37, today’s national gas price average is four cents more expensive on the week and one of the largest one-week national gas prices surge seen this summer.
About one quarter of oil refining capacity in the Gulf Coast had been taken offline, according to forecasts by Oil Price Information Service (OPIS). That equates to about 2.5 million b/d. Harvey also caused eight refineries in Texas to shut down, including: ExxonMobil Baytown (584,000 b/d), Deer Park (340,000 b/d), Pasadena Refining (115,700 b/d) and Phillips 66 Sweeny (260,000 b/d) in the Houston region, while several others are operating at reduced rates. In Corpus Christi, Flint Hills (304,000 b/d); Valero (300,000 b/d); CITGO (163,500 b/d) and Valero Three Rivers (91,000 b/d) remain offline since initial shutdowns began in advance of Harvey late last week. Over the weekend, Valero reported its refineries in Corpus Christi and Three Rivers sustained "substantial refinery impacts" and the company is evaluating infrastructure needs to determine when the refineries can resume operations. Corpus Christi is connected via pipeline to refineries in San Antonio and Nixon, TX, which can supply Corpus Christi if local refiners are offline for an extended period.
“No doubt, Harvey has impacted operations and access to refineries in the Gulf Coast. However a clear understanding of overall damage at the refineries is unknown,” said Jeanette Casselano, AAA spokesperson. “Despite the country’s overall oil and gasoline inventories being at or above 5-year highs, until there is clear picture of damage and an idea when refineries can return to full operational status, gas prices will continue to increase.”
On Sunday, Magellan Midstream Partners suspended all inbound and outbound refined products and crude oil transportation services on its pipeline systems in the Houston area. Conversely, the Colonial Pipeline said its Gulf Coast pipeline and terminals are continuing to operate normally. The Colonial Pipeline delivers gasoline from Houston to the Mid-Atlantic.
Harvey is expected to continue to impact the region through the middle of the week with an additional 15 – 25 inches of rain expected over the middle and upper Texas coast through Friday.
To help alleviate the tight and potential shortage of supply, the Environmental Protection Agency (EPA) announced over the weekend that it will waive environmental standards on gasoline for select counties in Texas.
“As in any national or local state of emergency, AAA expects gas prices to be held in check up and down the gasoline supply chain, including prices set by refiners, distributors and dealers unless there is a clearly justifiable reason for an increase,” added Casselano.
Locally, South Jersey motorists are paying an average of $2.29 for a gallon of unleaded gas. This is a 1-cent decrease from last week ($2.30), and the same price as one month ago ($2.29). Today’s price is 32 cents more per gallon than this time last year.
Quick Stats
Mid-Atlantic and Northeast
Gas prices are relatively stable throughout the region, with the exception of increases in Washington, D.C. (+4 cents) and North Carolina (+3 cents) and decreases in Delaware (-2 cents) and West Virginia (-1 cent) on the week.
The bulk of the region’s flat prices derives from the latest Energy Information Administration (EIA) report showing that gasoline inventories in the Mid-Atlantic and Northeast declined by 1.8 million bbl for the week ending Aug. 18. Total stocks on hand now sit at 63 million bbl, more than 6 million bbl lower than year-ago levels and 3.7 million bbl higher than the running five-year average for this week. With stocks below year-ago levels, prices indicate that demand has not increased dramatically during the last weeks of summer and supply is meeting current need. However, stocks could drop and prices may increase in the week ahead depending on Harvey’s impact on the ability of several Gulf Coast refineries’ to return to operational status.
Oil market dynamics
At the end of last week, the price per barrel of West Texas Intermediate remained below $50 – settling at $47.87. On Monday morning, prices began to fall as news of refinery closings due to Tropical Storm Harvey began to influence the market. Refinery closings signal that less oil will likely be consumed as catastrophic flooding persists in the region, and assessments of damage to energy infrastructure assets are stalled until conditions improve. All of this uncertainty has made the market jittery.
EIA data released last week showed that crude oil inventories dropped by an additional 3.3 million bbl. The continued decline in crude oil has been largely tied to strong refining operations as gross inputs refineries across the U.S. have topped 17 million b/d every week going back to mid-April. However, this trend could change due to refinery closures and reduced operations due to Harvey. As the emergency situation evolves, refiners in other regions, additional imports and alternative transportation routes may be needed to fill any gaps in meeting demand during the aftermath of the storm – all of which could tighten supply and add extra costs to getting gasoline to the pump.
Moreover, according to Baker Hughes, Inc., active oil rigs are down by four, standing at 759 as of last week. Fewer active rigs -- coupled with crude oil output being currently reduced by more than 21 percent in the Gulf of Mexico due to the storm -- could be a recipe for oil prices to jump throughout the week. However, any price jumps will be linked with matching demand estimates, which could signal a dramatic decline based on the storm.
It is still too soon for the market to know how badly damaged energy infrastructure is from the storm, but the coming days will offer more insight into how long recovery and restoration may take. Demand shifts based on the storm and countermeasures the market will take to meet a new supply and demand landscape will also be evaluated.
Motorists can find current gas prices along their route with the free AAA Mobile app for iPhone, iPad, and Android. The app can also be used to map a route, find discounts, book a hotel, and access AAA roadside assistance. Learn more at AAA.com/mobile.