Gasoline is expected to be slightly more expensive for drivers across the U.S. this weekend, as wholesale prices rose ahead of Hurricane Harvey.
"I think it should go up 5 to 15 cents, and most places tending to be 5 cents. I think the largest increases take place in Texas and Louisiana," said Tom Kloza, global energy analyst with Oil Price Information Services. "Retailers received a 10 to 20 cents increase this week."
But after that initial rise, it's impossible to know which way prices will go because of the uncertainty of the storm. Harvey is expected to drop huge amounts of rain as it hovers for several days over an area that is home to about a third of the U.S. refining capacity. About 20 inches of rain is forecast for a wide area of the Texas coastline and inland, with some areas expected to see as much as 35 inches.
The U.S. has plenty of gasoline in storage, but the issue would be whether flooding impacts the ability of refiners to both move out finished gasoline and bring in crude oil. If key refining operations are flooded, it could take months to restore service.
"We're getting a lot of reports of refiners with modified operations. We're now dealing with a storm the likes of which we have not seen in the past 10 years. A storm that's this slow-moving with impacts that are going to play out through the first half of next week, as well, makes it something that's extremely unpredictable," said Jacob Meisel, Bespoke Weather Services' chief weather analyst.
Kloza said if refineries are knocked out, then prices could spike sharply, but it could take time to know if there is serious damage. He does not expect to see sharp local spikes at the pump in the impacted areas because retailers are prevented from gouging by state laws.
Gasoline prices could initially be higher in any market that is served by refineries in the affected area. But if there is a bigger price spike, it could spread and have a bigger impact on prices across the U.S. The national average Friday was $2.35 per gallon for unleaded regular, according to AAA.
"You'll start seeing it this weekend. The people that will also feel the brunt are consumers in the mid-Atlantic and Southeast that are being supplied by gasoline from the Colonial pipeline, as well as some markets in the Midwest that are receiving Gulf Coast supplies," said Andrew Lipow, president of Lipow Oil Associates.
In the Gulf Coast spot market which impacts wholesale prices, gasoline made wild gyrations Friday, spiking to $1.73 per gallon but ending the day near $1.62 per gallon, still 12 cents above Tuesday's level, Kloza said.
"Today we are seeing not just sellers spooked, but buyers as well. If the storm comes across halfway between Corpus and Houston, gasoline is overvalued. If it strikes directly at Corpus, gasoline is probably undervalued," said Kloza.
Kloza said the summer driving season ends Labor Day, and demand should drop after that. Demand for gasoline will also drop because of storm-bound drivers.
"If this is a typical hurricane that destroys demand and only inconveniences refiners for a few days of precautionary shutdown, the market will sell off next week and certainly after Labor Day," said Kloza.
But this storm carries a lot of unknowns.
"It's going to play out in slow motion. In terms of energy impact, it could be Tuesday and Wednesday before western Louisiana sees the worst impact of the storm, because the storm is going to linger over the Southeast coast. It could move over the Gulf of Mexico, and there could be a re-strengthening," said Meisel.
Traders are uneasy about the potential impact of the storm, said John Kilduff, energy analyst with Again Capital. "You have two issues. You have operational issues. Do they get flooded out to the point where they can't operate? And secondly, can personnel access the facilities? The flooding could be unprecedented. I've never seen rainfall forecasts like these."
Some Gulf Coast refiners have been shuttering operations ahead of Hurricane Harvey, and others were monitoring the path of the Category 3 storm which was moving toward the Corpus Christi area Friday.
"This is a different kind of hurricane in my point of view because of the volumes of rain. They really do see some areas getting three feet of rain," said Kilduff. "That inhibits a quick return of the refineries to service."