In the fallout of Hurricane Harvey, thousands of Texas residents have been displaced, billions of dollars worth of damages have struck the Lone Star State, and many are going without food and water. But even when the storm breaks the effects of Harvey could now seep into the rest of the country in the form of higher gasoline prices.
Gas prices have surged to their highest levels in two years, and some experts say they could jump by $1 per gallon in the coming days. As the market engages in crack spread trading – selling oil and buying refined products like gasoline – prices have been steadily climbing. September gasoline futures rose 6.2 cents to $1.8844 per gallon on Wednesday alone.
Right now, for analysts, the worst-case scenario is that Harvey returns to the Gulf of Mexico, becomes harder and strikes the same area it just hit. If this happens, then be prepared for even a bigger punch to your wallet at the pump.
Less Fuel Produced
The weather event impacted about one-quarter of the country’s refining capacity, which means less fuel is being produced. The storm also affected the distribution of gasoline and interrupted crude exports. Analysts are beginning to worry that the oil fields could temporarily shut down for several weeks as they attempt to refill the facilities with workers and repair the damages.
Goldman Sachs says that roughly 15%, or 1.4 million barrels per day (bpd), has already been disrupted.
Flooding now remains the greatest concern for energy infrastructures in the Texas region. As of Sunday, ten refineries were closed because of Harvey. Two of the nation’s biggest oil refineries, Motiva Enterprises, and Valera Energy, confirmed they are closing their regional plants because of severe flooding.
Giovanni Staunovo, an analyst at UBS Group AG in Zurich, told Fortune that the next few weeks would be volatile for the oil industry:
The market focus seems to be on the quantity of refinery capacity shut-ins and potential to hit oil demand. Harvey’s disruptions mean greater variability in the weekly U.S. oil inventory, production and demand data in the next weeks, which will likely add to higher volatility.
Houston is expected to experience the biggest economic massacre. The Houston metro area represents the fourth largest in the nation, and most of the economic growth is related to industry, such as oil production and shipping.
That said, the economic ramifications could be felt beyond Texas, warns S&P Global Platts, an energy information agency:
Texas is also a major source of refined products to the Northeast via Colonial Pipeline, and waterborne refined products and crude exports. US Gulf coast refiners exported 2.7 million bpd of refined products in May, primarily to buyers in Latin America and Europe. U.S. Gulf coast refiners regularly export gasoline to Mexico, for instance, and diesel to Europe.
All eyes will be on the Energy Information Administration (EIA)’s weekly oil report next week. The U.S. agency did publish its report for the week ending August 25 on Wednesday, but it did not account for much of the carnage stemming from Harvey.
The devastation is still being assessed and the numbers are being crunched, but, as Liberty Nation reports, as much as $20 billion in losses could happen. When some compare Harvey to Katrina, they are not exaggerating. The Category 4 hurricane will go down as one of the worst storms in U.S. history.
Texas is one of the toughest states in the country, and it will move on from this, no matter how long it takes. How will you be affected by higher gasoline prices? Let us know in the comments section!
