Hurricane Harvey likely to boost gas prices

Staff and wire reports

Hurricane Harvey is expected to hit a refinery-rich stretch of the Gulf Coast and U.S. drivers could soon see the impact at the gas pump.

Some refineries are expected to shut down until the storm passes, possibly disrupting gasoline supplies.

Wholesale gasoline futures rose Thursday 5 cents, or 3 percent, to $1.66 per gallon, and experts say that will quickly show up on service-station signs.

But in Michigan, consumers shouldn’t expect prices to go up this weekend because of a Midwest pricing phenomenon known as “price cycling,” said Patrick DeHaan, an analyst with GasBuddy.

In that price cycling, which also occurs in Indiana and Ohio, gas stations are constantly in a price war to undercut each other for one to two weeks. The undercutting usually lasts until the stations are losing money, then one station or a chain of stations will hike prices 20-30 cents a gallon, DeHaan said.

The spike of the most recent cycle started Monday, said DeHaan, and even though gas prices are now coming down, it is still on the high end. The big unknown is the damage extent of the hurricane.

“Gas prices probably will not rise this weekend in Michigan, at least not when looking at major averages,” he said. “But we’ll have to see. There could be an increase early next week.”

AAA Michigan spokeswoman Susan Hiltz added that Hurricane Harvey is not heading to Michigan, but its effects may be felt in the form of higher gas prices. Harvey is forecast to intensify into a category 3 hurricane before reaching the Texas and western Louisiana coastlines. Nearly half of U.S. refining capacity sits on the U.S. Gulf Coast; nearly one-third of it appears to be in Harvey's path.

“This storm could cause more refinery closures and prevent tankers from moving fuel in-and-out of Texas ports, which would cause gas prices to surge from 10-30 cents,” Hiltz said via email. “Our partner at OPIS says the most serious threat is wind damage impacting power supplies. However a longer lasting storm that dumps significant amounts of rain could cause major flooding problems impacting equipment, taking a long time to recover from.”

Regardless of the severity of Hurricane Harvey, DeHaan said, “The good news is this isn’t Hurricane Katrina.”

That Gulf storm in August 2005 caused about a 40-cent increase overnight, DeHaan said. We might not know the full impact of Harvey until Monday, when refineries have had a chance to assess damage, which could be caused by flooding or power outages, he said.

“We’ll see retail prices move up in every nook and cranny of the country through this very uncertain weekend,” said Tom Kloza, an analyst with the Oil Price Information Service.

Kloza said an increase of 5 to 15 cents per gallon was most likely but a spike of up to 25 cents by Labor Day was possible if the hurricane hits a refining center.

Before the storm crept so close to the Texas Gulf Coast, the nationwide average price for a gallon of regular gasoline rose a penny this week to $2.35, according to AAA. A year ago, the average price was $2.19 a gallon.

In the Gulf of Mexico, oil and natural gas operators have begun evacuating workers from offshore platforms.

The U.S. Bureau of Safety and Environmental Enforcement said that based on reports from operators at midday Thursday, workers had been removed from 39 platforms. The agency said that nearly 10 percent of oil production and 15 percent of natural gas output in the Gulf had been shut down.

Exxon Mobil shut down two of its platforms and was evacuating all personnel in the expected path of the storm, said spokeswoman Suann Guthrie. She said refineries were operating normally late Thursday.

Detroit News staff writer Kim Kozlowski contributed.