As the largest hurricane in over decade struck the Texas coast, thousands of locals fled the storm for safer areas. Even though the threat of flooding and wind damage is on majority of the country’s minds, it is important to know the effect hurricane Harvey will directly have on crude oil and gasoline prices for investors. As a Category 4 hurricane, Harvey is expected to strike in Corpus Christi which is a major port and hub for oil exports. So what impact can we expect on oil and gas prices and U.S. refineries?
As the threat of hurricane Harvey began to near, refineries were shutting down as a precautionary measure. The Texas Gulf Coast has one of the largest concentrations of oil refineries and manufacturing facilities in the world and is home to 1/3 of the country’s refining capacity and produces roughly 20% of America’s crude (U.S. Energy Information Administration).
Texas refineries are critical to the oil and gas industry and without them, there is a shortage of gasoline which raises gas prices. Even though the crude oil is refined on Texas’ shores, it is transported throughout the country. So even if you do not live in the state of Texas, your gas prices are directly effected by hurricane Harvey.
In addition to an increase in gas prices, the refineries are expected to have extensive damage from the strong winds and storm surge. This possibility could cause long term effects on the industry. If refineries have limited availability to accept crude oil in order to be processed into gasoline, crude oil prices will drop. Less demand equals lower prices.
There is currently a large price difference between crude oil and gasoline. If the refineries continue to be shut down into next week, this price gap will strengthen and could possibly increase. However, if hurricane Harvey’s damage to the refineries is minimal and they are turned back on, this price gap will shrink.
Many consumers are mainly concerned with gasoline prices but one should look at the damage hurricane Harvey will have on Texas’ refineries. More than 45% of the U.S. petroleum refining ability is located on the Gulf Coast and it can create long term price gains or losses for the oil and gas industry.
Hurricanes pose a huge threat to the Gulf Coast not only for loss of life and damage to property, it can create a huge disturbance to the oil and gas industry. As we head into the weekend and assess the aftermath of hurricane Harvey, expect gasoline prices to quickly increase but fall back to the normal range next week. The future of crude oil prices are undetermined as we wait and see the damage caused to the refineries.
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