Retail fuel prices increased slightly on Wednesday as post-Hurricane Harvey refinery closures continued to reverberate at the nation’s fuel pumps. But the end of the ordeal may be coming soon.
Average gasoline prices rose 2 cents a gallon to $2.94 on Wednesday in the five-county Philadelphia area, up 39 cents, or 15 percent, since the hurricane made landfall on Aug. 25 in Texas, according to AAA. In South Jersey, the price increased 1 cent overnight to $2.74, up 44 cents, or 19 percent, since the storm.
But more gasoline, diesel, and jet fuel are expected to hit the market soon. Storm-shuttered Gulf Coast refineries are restarting operations this week, and the Colonial Pipeline, the major route that supplies fuel from Texas and Louisiana across Southern states and into New Jersey, resumed full service on Tuesday.
“We should be in the peaking process soon,” said Tom Kloza, global head of energy analysis for the Oil Price Information Service.
Kloza hedged his forecast on the assumption that Hurricane Irma, currently barreling across the Caribbean toward the Florida Keys, does not veer off and strike any Gulf Coast refining centers.
Irma will drive short-term demand as motorists seek to evacuate imperiled areas in its path, but the storm is likely to kill consumption in the Southeast in its aftermath.
“Gasoline demand gets goosed this week by Irma evacuations and preparations,” Kloza said, but he added that he suspects demand in the following weeks will fall one million barrels below peak-season rates.
The shutdown of 20 percent of the nation’s refining capacity created a market imbalance in which there was an oversupply of crude oil — less was needed by processors — and an undersupply of finished product. Although the price of crude oil and gasoline typically move in tandem, in this instance, crude prices went down while refined prices went up.
Refineries that avoided Harvey’s wrath, such as the four Philadelphia-area fuel-processing facilities, were the big beneficiaries of the widening “crack” spread, or the difference between the price of a barrel of crude oil and a barrel of gasoline, which nearly doubled in less than two weeks, from $22.46 a barrel on Aug. 24 to $42.64 a barrel on Aug. 31
Embattled Northeast refiners, such as Philadelphia Energy Solutions, operator of the 330,000-barrel-a-day Philadelphia refinery complex, enjoyed a profitable reprieve from their typically disadvantaged position relative to refiners in the Midwest and Gulf Coast. The price of renewable-energy credits, which has crushed merchant refiners like PES, has also fallen with the reduction in gasoline supply.
“For Northeast refiners, this was really a lifeline,” said Patrick DeHaan, a senior petroleum analyst for GasBuddy. He said he expects fuel prices in the Northeastern United States to take a month to return to pre-Harvey levels.
Some analysts have questioned the security of the nation’s energy supplies since about half the country’s fuel-refining capacity is in Texas and Louisiana, where it is vulnerable to tropical storms.
But Sandy Fielden, director of oil and products research for Morningstar, said security fears are unlikely to induce fuel manufacturers to relocate because of the immense investment of infrastructure in the Gulf Coast.
“In the aftermath of Harvey, as officials review the lessons learned, the prospect of relocating refineries to disperse the Gulf Coast concentration is almost certainly a nonstarter,” Fielden said in a report Wednesday.
The Northeast refiners supply less than 20 percent of the region’s fuel needs, so Harvey’s impact more than a thousand miles away was sufficient to upset supplies and drive up prices. Ships loaded with refined fuel from Europe and Canada were diverted from the Northeast to starved Southeastern markets, along with some fuel produced from Delaware River refineries, analysts said.
Seven Texas refineries with two-million-barrel-a-day capacity, or about 11 percent of the nation’s output, remained shut down late Tuesday, according to Platt’s, an industry publication. Eleven other Texas refineries are either partially shut down or returning to service, representing a combined reduction of about one million barrels in fuel-production capacity.