The super soaker Hurricane Harvey has inundated not only Corpus Cristi, Houston and many other cities and towns, it has wreaked havoc on energy production.
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What’s for sure is that gasoline prices, which have been surging, will continue to rise. That we know. But, how high will prices go?
The Oil Coast—as it is known—runs from Texas to Louisiana and accounts for 14 percent of the nation’s oil production and 43 percent of the refinery capacity.
Texas alone accounts for 25 percent of the refining capacity.
With about 25 percent (4.4 million barrels per day) of the nation’s refining currently shuttered due to Harvey, wholesale prices have already spiked at two-year highs ($1.91 per gallon intra-day trading Wednesday) at the New York Mercantile Exchange (NYMEX).
For gasoline that most Americans purchase at the pump, the average price on Wednesday was up 6 cents week-over-week to $2.40 per gallon (for regular), but like many of the flood waters, the price continues to rise. The difference is that gas prices will stay high for much longer than the flooding.
Following Hurricane Katrina in 2005, prices shot up by 40 cents per gallon. While prices due to Harvey may not increase that much, many experts say it could go as high as a quarter. (I think 30 cents or more is not far-fetched).
Even at a quarter cent increase in each gallon, to fill up the most popular vehicles sold in the US—the Ford F-150 and Toyota Camry—it would cost an additional $7.25 and $4.25, respectively.
Midnight Oil--How long will higher prices last? It all depends upon the extent to which the refining capacity is damaged and gets back up and running. To date, both the first and second largest refineries in the nation have reduced production (the Motiva Port Arthur and Exxon Mobile’s Baytown refineries).
However, it may be a week or more before any fulsome assessment can begin to be made. The rock band Midnight Oil sings, “How do we sleep while our beds are burning?” Likewise, as the storm’s devastation and destruction continues, it is impossible to do needed damage assessments. Heck, employees can’t even get to work at many energy entities.
To complicate matters more, it isn’t just the refineries that are having issues. Its the entire energy infrastructure, including everything's from pipelines to ports.
The infrastructure, much of it fractured, is essentially frozen. No significant oil or gas is coming in or going out. Furthermore, just as many (including meteorologist) thought Harvey was on it’s way east, it decided to give the northeast part of Texas and western Louisiana another roundhouse blow, as if to say: Take that!
Price Gougers—Finally, those who see high prices should be suspect if they appear inordinate. We saw many instances of price gouging after Katrina. In Texas, the Attorney General’s office has already received over 500 complaints. That’s not all related to gasoline, of course. One merchant tried to sell a case of water for $99. Many hotel room prices jumped exorbitantly, sometimes more than tripling!
For gasoline gougers, they have tried to charge anywhere from $4 to $10 per gallon! These types of things violate the law and are punishable in Texas by heavy fines ($20,000 per instance and $250,000 per instance if the person being gouged is over 65 years old).
In Louisiana, a single violation can result in six months in jail, and if the gouging leads to physical injury or death, a violator can spend decades in the slammer. Report any violations to state Attorney General offices (www.texasattorneygeneral.gov or www.ag.state.la.us).
We will see what occurs in the coming days/weeks on the damage assessments, but those who are low on gasoline, should fill’r up now to avoid imminent price increases. In the meantime, we can hope and pray for those impacted by Hurricane Harvey, and perhaps cross our fingers that the residual impact on not only fuel costs but on economic growth will be short-lived.
(About the Author: Former US Trading Commissioner Bart Chilton is a political and policy commentator and author of Ponzimonmium: How Scam Artists Are Ripping Off America. He can be reached at bartchilton@bartchiltoncom.)