Hurricane Harvey and Gasoline Prices
More than a week ago, we at BEST WEATHER INC. starting telling clients that the hurricane season would be stronger than others feel. We also mentioned Harvey would likely be more of a threat than many other forecasting firms felt. Why? One reason is something we call the “loop current” in the Gulf and another reason is the warmer-than-normal Atlantic temperatures this year. In addition, the MJO index is in a favorable position.
So then, why have gasoline prices exploded while crude oil prices have lagged as Harvey bears down on Texas? A good explanation can be found here: http://www.marketwatch.com/story/oil-prices-ease-with-caution-still-in-place-even-as-us-stockpiles-decline-2017-08-24. However, usually after a big rally in gasoline prices on hurricane “psychology”, prices fall back. There is still ample supplies of both gasoline and crude oil.
OPEC is not cutting back on oil production and the world is taking more steps towards renewable energy. Hurricane Harvey is having more of a threat on actually hurting crude demand. Harvey is shutting down gasoline refinery platforms in the Gulf. However, if Harvey makes its way closer to land, it may have some impact on crude oil and natural gas supplies by August 29th. But the primary fundamental issue remains the tremendous amount of U.S. shale production.
Readers who are wondering about the current lackluster performance of natural gas should remember that only 5% of natural gas production is found now in the Gulf. Compare that to more than 40% during the years prior to Hurricane Katrina. Back then, storm activity had much more of an impact on the market, both actually and psychologically.
HURRICANE HARVEY WILL WEAKEN OVER LAND BUT HAS A CHANCE TO REFORM AND MOVE NEAR HOUSTON ON TUESDAY
PRICE SPIKE OF GASOLINE DUE TO REFINERY SHUT DOWNS
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-Jim Roemer
