Hurricane Ida Could Push Gas Prices Even Higher

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By Chris Isidore, CNN Business

Hurricane Ida’s direct hit on the domestic oil and gasoline industry could drive up gas prices, exacerbating inflation it is already hurting American consumers.

But how much the prices will increase, and for how long, will depend on the extent of the damage. The storm has hit Louisiana and the Gulf Coast Sunday, killing at least one person and cutting power to over a million customers.

The price of a gallon of regular gasoline was $ 3.15 on Monday, according to AAA, up just a fraction of a cent from the previous day’s average and down 1 cent from last week. But wholesale gasoline futures were about 5 cents higher as of trading on Monday. They rose as much as 10 cents a gallon in Sunday night trading, suggesting retail prices may soon follow suit.

Gas prices have already climbed almost 80% from their low point in April 2020, when driving and economic activity have generally come to a halt due to the pandemic. But in the months that followed, Americans hit the road in droves, dramatically increasing demand for gasoline. Prices have increased 41% since last August.

Stop of production on the Gulf coast

More than 95% of U.S. oil production on rigs and offshore platforms in the Gulf of Mexico were shut down before Hurricane Ida, according to the Bureau of Safety and Environmental Enforcement, the federal regulator overseeing these. facilities. They will remain closed until further notice, said Tom Kloza, global head of energy analysis for the oil price information service, which tracks AAA prices.

Most of the region’s large refineries are either closed or operating at reduced rates, Kloza said, without saying yet when they will return to normal.

Louisiana is home to three of the country’s seven largest refineries and accounts for 17.5% of the country’s overall refining capacity at its 15 refineries, according to the US Energy Information Administration.

Another concern is that major pipelines carrying gas, diesel and jet fuel from the Gulf Coast to other states were also shut down as a precaution before the storm. The closure of one of them, the Colonial Pipeline, after a hack earlier this year caused gasoline price spikes and shortages along parts of the east coast.

Although the flow of oil from rigs and offshore platforms is expected to return to normal within a few days, flooding or prolonged power outages could keep refineries and pipelines offline, which could also push up gasoline prices, Kloza said.

Another potential disruption could come from the consumers themselves. In May, panic buying at the pump exacerbated price spikes and shortages when the Colonial Pipeline closed.

“We have to watch out for bad human behavior,” Kloza said. “It’s the week before Labor Day, which is normally a high demand week anyway.”

Prepare for price spikes

The worst one-week peak in 30 years followed Hurricane Katrina in 2005. The average price of a gallon of regular gasoline climbed 46 cents, or 18%, to $ 3.07 a gallon, according to EIA data. It took two months for gas prices to return to pre-Katrina levels after this storm.

But this kind of spike is the worst-case scenario. In 2005, many refineries in the area were flooded and without power for months, Kloza said.

The biggest impact on gas prices will likely be in the southeast, said Kloza, which was the region of the country with the cheapest gas before the storm. All states in the region have average prices below $ 3 a gallon today.

Another factor in the leadership could be an upcoming meeting of OPEC oil ministers with officials from Russia and several other major oil producers.

The Biden administration, concerned about inflation, has been pressure the group’s allies to agree to an increase in production. The group was generally expected to accept an increase of 400,000 barrels per day. But Reuters reported that Kuwait’s petroleum minister made comments on Sunday questioning whether such an increase was necessary in the face of the upsurge in Covid-19 cases and expectations that the ongoing pandemic could reduce economic activity and oil consumption.

“The markets are slowing,” Mohammad Abdulatif al-Fares said in comments to Reuters on Sunday. “Since Covid-19 has entered its fourth wave in some areas, we need to be careful and reconsider this increase. “

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