Hurricane Isaac to cause spike in gas prices

Isaac

Tropical Storm Isaac was upgraded to a hurricane on August 28, the day this image was created. Image: Official US Navy Imagery/Flickr/CC BY

Hurricane Isaac — recently upgraded from a tropical storm — could cause gas prices to spike for the next few weeks. It threatens the output of up to a dozen refineries in the Gulf region.

Gas prices rise with refinery closures

According to Reuters, the hurricane may cause the temporary closure of 85 percent of all U.S. off-shore oil production, as well as 68 percent of all natural gas output.

Phillips 66, Valero, Marathon and Exxon Mobil all shut down refineries on Tuesday in advance of the storm. The refineries in the region produce more than 20 percent of the nation’s gasoline supply.

The gasoline futures for September, a major determiner of at-pump prices, closed at $3.15 per gallon Monday. That is the highest it has closed since the early part of May. That could translate into as much as an extra 10 cents a gallon at the pumps, according to Tom Kloza, chief oil analyst for the Oil Price Information Service. The OPIS tracks gas prices for AAA.

Brian Milne of Telvent DTN was quoted in the Detroit Free Press:

“We’re definitely going to see a bump. We’re going to get into the $3.80s at minimum and it could go higher, depending on how quickly things are resolved.”

According to AAA, the national average price per gallon of gas has risen by 2.6 cents since Friday. That is when tropical storm Isaac first appeared to be bypassing Florida and making its way toward the Gulf of Mexico, with its proliferation of oil refineries.

Tuesday, the national average for a gallon of gas was $3.756. That is up 26 cents a gallon from the previous month.

Short supplies make it worse

The problems is exacerbated, says Francisco Blanch, head of global commodities research for Bank of America Merrill Lynch, by already low gas supplies and short corn crops. The corn, depleted by drought, is necessary for ethanol production.

Blanch said:

“Now you’ve got a potential supply shock when we don’t have a lot of gas in storage.”

Affects not lasting

The good news is that the price spike should only last a short while, according to Koza, provided there is no lasting damage to the refining facilities as a result of the hurricane.

Sources

CNN
Detroit Free Press
Monroe Patch

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