Gas Prices Drop But Steep Decline Yet Unlikely

Hurricane-Damaged Oil Refineries Return to Production
Sep 27, 2017

Gasoline prices are starting to drop after the hefty bump caused by Gulf Coast refineries temporarily shut down by Hurricane Harvey.

But don’t expect them to fall any near as quickly as they rose.

Harvey crashed into Texas on Aug. 25 and hung around the Lone Star State, and then adjacent Louisiana, through Aug. 30. Harvey hadn’t even departed the area on Aug. 28 when AAA reported it already had an effect on prices at the pumps.

“At $2.37, today’s national gas price average is four cents more expensive on the week and one of the largest one-week national prices surge seen this summer,” Jeanette Casselano, AAA director of public relations, wrote at that time.

The situation was much worse on Sept. 5.

“At $2.65, the national gas price average is 27 cents more expensive on the week,” wrote Casselano. “Overall, gas prices are pennies away from topping the highest price ($2.67, Aug. 15-18, 2015) Americans have paid for a gallon of gas in more than two years.”

The average hop in gas prices in the Garden State that week was, according to AAA, 40 cents per gallon.

Sept. 11 brought better news, if only slightly better.

“For the first time in more than 15 days, the national gas price average appears to be leveling out despite Hurricane/Tropical Storm Irma making landfall in the southeast,” Casselano reported. “Holding steady at $2.67, today’s national gas price average is just three cents more expensive on the week.

Refineries that had been closed due to Harvey were starting to reopen.

“According to the Department of Energy,” wrote Casselano, “at least five refineries in the Gulf Coast are operating at reduced rates, which accounts for eight percent of U.S. refining capacity. Six refineries are in the process of restarting, accounting for 12 percent of U.S. refining capacity. Five refineries remain shut down, accounting for six percent of U.S. refining capacity. The restarting process can take several days or weeks, depending on damage.”

Prices in the Mid-Atlantic States, Casselano said, were being driven up by issues with the Colonial Pipeline, which starts in Houston and ends in Linden, New Jersey. As of Sept. 5, pipeline delivery delays were still up to a week.

Prices finally started to fall last week, as reported by Casselano on Monday, Sept. 18.

“As South and Southeastern states recover from Hurricanes Harvey and Irma, motorists in 45 U.S. states are paying less for a gallon of gas on the week. At $2.62, today’s national gas price average is the cheapest in 14 days and five cents less than last week,” said Casselano.

The Department of Energy reported that more refineries had come online, and Casselano made no mention of the Colonial Pipeline. So the average price at the pump in the Garden State fell at the national average of five cents.

The drop for New Jersey motorists might have been larger, had it not been for Irma and the problems she caused in Florida. Persons evacuating as the hurricane approached that state caused a huge spike in demand at a time gasoline usage usually falls after the traditional end of vacation driving on Labor Day. Indeed, the federal Energy Information Administration said there was a draw of 8.4 million barrels from the country’s gasoline reserve, the highest on record.

“At 5.7 million (barrels), the (Mid-Atlantic) region saw the country’s largest draw in gasoline supplies, according to an EIA report,” wrote Casselano. “It can be assumed that a portion of the draw accounts for supply shipments directed to the south in response to tightened supplies cause by Irma and Harvey.

“It looks like pump prices will continue on this declining trend into the coming weeks as the regions affected by Irma and Harvey resume normal operations,” said an optimistic Casselano.

The declining trend may continue, but don’t expect a gallon of regular unleaded to drop to the $2.30 range motorists in New Jersey saw before Harvey. There’s an old industry saying, “gasoline prices shoot up like a rocket but drift down like a feather.” Numerous studies over the decades have proven that true.

There are a couple of reasons for that. Simple greed is one. Another, more excusable, reason is that gas station owners have to sell off the inventory in their tanks that they bought when prices shot up. So they’re in no hurry to reduce prices until they themselves can refill at lower prices.

— Rick Mellerup

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