Harvey Update: Price Impacts and the Need for Patience, Consideration

The U.S. Energy Information Administration (EIA) reports on rising gasoline prices in the wake of Hurricane Harvey and notes that the storm’s impact on prices is similar to the big hurricanes of 2005, Katrina and Rita. EIA:

Compared with other hurricanes that have made landfall in the United States since 2000, Hurricane Harvey’s impact on U.S. Gulf Coast spot gasoline prices has been on par with the impact from Hurricanes Katrina and Rita. In August 2005, gasoline spot prices rose nearly 30% within one trading day after the landfall of Hurricane Katrina in Louisiana. The gasoline spot price remained elevated for a second trading day before rapidly declining soon after. In September 2005, prices rose by almost 30% within three trading days after the landfall of Hurricane Rita before similarly declining. In contrast, gasoline spot prices remained stable or fell in the days after Hurricane Sandy, which hit the U.S. East Coast, and Hurricane Ike made landfall.

Here’s EIA’s chart, showing the slower rise in regional spot prices after Harvey, compared to rapid spikes after Katrina and Rita:

According to EIA, Harvey’s impact was more moderated than the 2005 storms because refineries in the Houston-to-Port Arthur region started going offline days before Harvey’s landfall near Corpus Christi. Gasoline prices rose steadily for four trading days before starting to decline, EIA reports.

EIA’s report underscores a number of points we’ve been making about the oil supply chain, of which the Texas-Louisiana region is part – especially the section of that chain that shows the path of refined products from refineries to retail outlets. Again, here’s the entire chain in an interactive graphic:

Worth noting again:

• While nationwide, inventories of crude oil for refining and refined products destined for consumer use are relatively high and could offset storm-related disruptions, depending on infrastructure constraints, the processes and markets that bring fuels to consumers are strongly influenced by the larger forces of supply and demand and specific disruptions in the transportation sector – affecting pipelines, tankers, barges, trucks and rail. To relieve some of the market pressures and to give the best opportunities to move gasoline and diesel to where it's needed, the government has granted certain temporary regulatory waivers.
• Historically, when supplies fall relative to demand, there has been upward pressure on prices. Then, as affected refineries and other infrastructure come back online, prices in the past have tended to moderate.
• Pricing decisions by owners of individual service stations – 97 percent of existing gasoline stations are independently owned – are influenced by supply-and-demand influences in the supply chain above them. They must manage replacement costs for the next tank of fuel that could be nearly 10,000 gallons, which means keeping their street prices competitive and ensuring sufficient cash flow to buy that next tank full.

In Texas, state Railroad Commissioner Ryan Sitton credited industry and state and federal governments for working expeditiously to meet energy needs. A number of energy companies have worked to restore supplies in affected areas, Sitton said, working around the clock to get gasoline from terminals to local service stations.

Amid this cooperation and hard work, consumers have a role to play as well, in which they’re patient and considerate toward others. Sitton said hoarding and panic buying have placed “unnecessary strains” on gasoline supplies in certain pockets of the state and called on citizens to allow the energy supply chain the time to safely return to normal. Sitton:

“This is not an instantaneous process. It takes time but they are making great progress at refueling stations across the state. … All of Texas is rightly focused on rebuilding the areas directly impacted by Hurricane Harvey and assisting our fellow citizens in need. One of the things every Texan can do to help is to fill up if you need to, but not to hoard fuel which is dangerous and hurts everyone else."

What Sitton is saying is that in these days of recovery and restoration, consumers should think and act responsibly, looking to the many terrific examples of the American spirit all around them for inspiration and working together so that processes can move forward for the greater good.