What Will Sandy Mean for Gasoline and Heating Oil?

In an eerie twist of fate, the East Coast is once again facing a Halloween hurricane.

What Will Sandy Mean for Gasoline and Heating Oil?

Sandy, as it is named, should not be taken lightly. At this point, all hurricane track models have it making landfall somewhere between Maryland and Boston on Monday into Tuesday.

This storm could potentially be more destructive than Irene, which hit the East Coast last summer. What makes this storm different is that, according to NOAA, it could combine with another system and develop into a super storm that could impact the area for days. (Read More: East Coast Braces for 'Frankenstorm' — A Natural Horror Show.)

The area that could be affected represents about 8 percent of refining capacity for the U.S., which translates to 1.1 million barrels a day. These refiners make everything from jet fuel to gasoline and heating oil. The area has seen a steady decline in the number of refineries operating, with 13 in 2007, and eight in 2012.

So what will it all mean for gasoline and heating oil prices?

This week on "Futures Now" I have been discussing how we are already running a deficit of 8 million barrels year-over-year in gasoline supplies and 30 million barrels in heating oil/distillate. Take that figure, combine it with the fact that pipelines and barge routes could be affected too, and remember that rates have already been bid up because lack of space.

What we have is a recipe for a serious price spike in gasoline and heating oil. Although I believe any spike would be relatively short-lived, lasting only one or two weeks, it may turn a bad supply situation into a worse condition as we head into the winter and then the spring gasoline season.

Gasoline futures have already spiked, and heating oil has risen too, although not at the rate of gasoline. The potential impact to heating oil prices could be as great as to gas, if not greater, because of the deficit in supply and the fact we are coming into winter. (Read More: US Gasoline Futures Higher as Storm Approaches East Coast.)

Let's hope this storm turns and goes out to sea, but I believe in being prepared for all scenarios. Be safe and be aware.

(See: 10 Things You Need to Know to Trade Futures.)

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