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Gasoline prices at pump spike on fears of spot shortages, as biggest U.S. refinery shuts

Key Points
  • Gasoline prices are rising sharply in some states, and they are expected to continue rising until the damage from Harvey becomes clear and refineries begin to get back on line.
  • Spot wholesale prices are up much more than prices at the pump, so consumer prices will catch up.
  • Deliveries are a concern in some markets, and drivers in Dallas lined up at gas stations Thursday.
Ahead of storm, gas demand was going up: John Kilduff

Gasoline prices are spiking at the pump in some states, amid fears of spot shortages, even before the full impact of Hurricane Harvey becomes clear.

Drivers could soon be paying upwards of $2.60 per gallon nationally, as Labor Day, the summer's last big travel weekend, approaches. Analysts had expected about a 10 percent jump in prices, but those forecasts were revised up as worries about spot shortages increased.

Nearly one-third of U.S. refining output was affected in some way by Harvey and its extreme rainfall and flooding.

"This is 40 percent of the capacity for east of the Rockies so this is an unprecedented event and has some unknown outcomes. Prices are going to move higher and there's going to be some panic behavior," said Tom Kloza, global head of energy analysis at Oil Price Information Service.

The shutdown of the biggest U.S. refinery, Motiva Enterprises, on Wednesday added to concerns. On Thursday, Motiva said that it was assessing the flooding and preparing to restart but did not have a timeline.

The price of unleaded gasoline at the pump rose by 4 cents nationally Thursday to an average of $2.44 a gallon. That is 10 cents above where it was just before Harvey hit the Gulf Coast, according to AAA.

In the spot wholesale market, prices were rising much faster than they were for consumers. Gulf Coast gasoline was up about 42 cents in the past week, and New York harbor prices were up more than 52 cents. Consumer retail prices have yet to catch up.

"My hunch is [retail] prices are going up from 30 to 60 cents [nationally] from where they were before Harvey, which was about $2.33," said Kloza.

In some select markets, prices jumped much more sharply overnight. Drivers in South Carolina, for instance, saw an 8 cent increase to $2.26 a gallon, which is 20 cents more than a week ago. Missouri residents were paying 10 cents more than they were on Wednesday, according to AAA.

"There will be dislocations, but it won't be an issue of the country running out of gasoline," said Kloza. "It will be things like Dallas is temporarily having problems getting gasoline to the stations ... there are lines at the pump."

The average price in Texas is $2.25 a gallon, but many cars have been flooded and driving is restricted by flooding, so demand is down. Dallas, however, saw prices rise 6 cents from Wednesday to an average of $2.37 Thursday.

Colonial pipeline disrupted after Harvey

One major gasoline delivery system, the Colonial Pipeline, said its two lines continue to run between Lake Charles, Louisiana, and Linden, New Jersey, delivering all types of fuel to its customers in the Southeast and mid-Atlantic U.S.

But its volume is reduced, and prices are rising. Colonial said Thursday it hopes to reopen a section of pipeline on Sunday that runs across Texas and was affected by the storm.

In the futures market, gasoline futures for September jumped 12 percent Thursday to $2.10. That contract was set to expire Thursday. In the New York market, cargoes were reported to be moving to Florida, which was missing out on its usual shipments from Texas. Now with the reduced flow from the Colonial Pipeline, the New York area is competing for the same cargoes as the Southeast, analysts said.

"There's been a huge spike in anxiety especially given the Motiva situation which seems to be unexpected," said John Kilduff, energy analyst at Again Capital. He expects prices at the pump to rise by as much as $1 as a result of Harvey.

He said the frenzy in the futures market reflects some of the action in the wholesale market. "As the contract goes to expiration, it becomes highly reflective of underlying cash market conditions. You can actually use this contract to get deliveries in two weeks time," said Kilduff.

Motiva had appeared to be riding out the storm with just a partial shutdown but that changed. There were some reports that the refinery would reopen in two weeks, but they were not official.

"That two weeks could become four. They're thinking Motiva and they're thinking everyone else in Beaumont, Port Arthur," where major refineries are based, said Andrew Lipow, president of Lipow Oil Associates.

Lipow expects prices to rise an average 3 to 5 cents per gallon every day for the next five to seven days.

Analysts expect gasoline prices to drop quickly once refineries come back on line, but as long as so many questions remain about the extent of the damage, gasoline prices will continue to rise.

"The Gulf Coast gasoline today is essentially trading at $2 a gallon. If you are a refiner in Pascagoula [Mississippi], you're buying that crude at $47 and you're selling gasoline at about $84 a barrel," Kloza said.

Some refiners are set to restart in Corpus Christi, and the Explorer Pipeline, which was down between Texas and Chicago, is resuming deliveries to Dallas.

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