Hurricane Harvey has created considerable uncertainty for gasoline supply and prices, as the area affected by the storm is home to much of the nation’s petroleum infrastructure, the US Energy Information Administration said.
On Aug. 28, the US average retail gasoline price was $2.40/gal, the second-lowest price on the Monday before Labor Day since 2004. However, prices on that date do not yet reflect the full effects of the weather event.
Retail gasoline prices vary widely in the US because of regional supply and demand balances, gasoline specification requirements, and taxes. The US Gulf Coast typically has the lowest retail gasoline prices in the country because it is home to about half of US refining capacity.
Also, regional state taxes on gasoline tend to be relatively low. West Coast retail gasoline prices are often above the national average because of the region’s isolation from additional supply sources, gasoline specifications that are costlier to manufacture, and higher taxes.
However, Hurricane Harvey, which made first landfall on Aug. 25 near Corpus Christi, Tex., has affected crude oil production and refinery operations along the Gulf Coast. Many refineries have shut down or are operating at reduced rates, which will likely have implications beyond the Gulf Coast.
The East Coast is largely dependent on pipeline shipments of transportation fuels from the Gulf Coast. The Colonial pipeline, a major pipeline supplying petroleum products from the Gulf Coast to the East Coast, is usually fully utilized but is now operating intermittently because of a lack of refinery and terminal product available to fill the line.
Meanwhile, several challenges remain in quickly restarting refineries, including loss of electricity, the ability of personnel to reach the refineries, and the capacity to gather and distribute crude oil and petroleum products.
Low crude oil prices are the main reason for relatively low gasoline prices, because gasoline prices in the US typically follow the Brent crude oil price. As of Aug. 29, the Brent crude oil spot price was $51/bbl, about $34/bbl lower than the previous 5-year average for the same day, but nearly $3/bbl above the price from the same time last year.
As of May, US Federal Highway Administration data indicate that year-to-date vehicle travel was up by 21.2 billion miles (1.7%) compared with the same period in 2016. Weekly product supplied, a proxy for demand, surpassed the 5-year average the first week of March and has since trended near the previous 5-year high.
As gasoline demand has increased, relatively high gasoline production and above-average inventory levels have placed downward pressure on prices.