Gas Prices Hit 2 Year High as 'Harvey' Disrupts Gulf Coast Refineries

Posted August 29, 2017

Gasoline prices surged but crude oil prices were lower Monday morning as Hurricane Harvey continued to wreak havoc on Houston-area refining.

"Hurricane Harvey hit a major supply line for gasoline in Florida and along the eastern seaboard", said Mark Jenkins, spokesman, AAA - The Auto Club Group.

Massive floods caused by the storm forced refineries in the area to close. Those hurricanes also temporarily disrupted refining capacity. The total amount of refining capacity offline could climb to as high as 30% if Harvey moves toward Louisiana, according to Houston energy investment bank Tudor Pickering Holt & Co. September gasoline futures surged up 6% near $1.736 a gallon. In Texas, the average rose to $2.173 a gallon, up from $2.136 a week ago.

Volatility in energy markets had picked up on Thursday as Harvey was upgraded to a hurricane and traders braced for impact.

The weekend brought with it quite the storm. The company announced that it was shutting down its Baytown, Texas plant in response to the storm which has a capacity of over 500,000 barrels a day, the second largest refinery in the United States.

More good news: Gasoline markets aren't freaking out.

More news: 'Hitman's Bodyguard' Barely Beating 'Annabelle: Creation' to Win Slowest Weekend of 2017

The market reacts to the consequences of Hurricane Harvey in the US, which led to a decline in oil production in the country. Conversely will they come back sooner?

The ultimate effect on gas prices may depend on how long it takes for the Gulf Coast refineries to power up again.

"There should be a stronger word than unprecedented", says Tom Kloza of the Oil Price Information Service.

"It's the key energy hub of the U.S", said Matt Smith, director of commodity research at ClipperData.

It can take about a week for big changes in futures prices to hit drivers at the pump. That represents another 13% of total USA refining capacity.

In early afternoon trade in Asia, Brent crude for October was trading at $52.57 a barrel, up 16 cents or 0.31 percent.

More news: Tottenham Hotspur: Mauricio Pochettino disappointed with late lapse in concentration after Burnley

Federal officials said Sunday that workers from 105 oil and gas production platforms had been evacuated.

Harvey had shut in some 22% of oil production the Gulf of Mexico as of Sunday and caused producers in south Texas at the Eagle Ford shale to curtail output.

It also helps that few major USA refiners have reported extensive damage from Harvey so far.

Latin American countries relying on USA gasoline or distillates will also have to find alternative sources for their fuel, while Europe could look to the Middle East for additional distillates to compensate for any fall in US exports. USA gasoline prices RBc1 have risen nearly 10 percent since Wednesday to a high of $1.74 a gallon, their loftiest since April, as refiners shut down in preparation for the storm.

"I think for a couple of weeks the US will need supplies from all over the world", Mr. Ul-Haq said.

-Alison Sider contributed to this article.

More news: Trump lashes out at former National Intelligence Director, Clapper