Hurricane Harvey has caused devastation across the Gulf Coast and knocked out two of the country’s largest oil refineries, lifting gasoline prices and futures-related exchange traded fund.
The United States Gasoline Fund (NYSEArca: UGA) surged 7.9% Thursday as RBOB gasoline futures jumped 14.4% to $2.1551 per gallon.
“In terms of product price increases, it might get worse before it gets better,” Rob Smith, an energy analyst with IHS Markit, told CBSNews.
Motiva’s refinery in Port Arthur, Texas – the largest refinery in the U.S. – shut down Wednesday due to flooding, and on Thursday, Colonial Pipeline – the largest pipeline operator for gas distribution in the U.S. – planned to shut down its gasoline line because Gulf Coast refiners were unable to process crude oil, Business Insider reports.
Market observers estimate it will be weeks before the energy sector in the southeast Texas Gulf Coast come back online and resume normal operations.
“Only when the water is gone will refineries be able to estimate how much damage they have – presently, it’s very difficult,” Ehsan Ul-Haq, director for crude oil and refined products, Resource Economist Ltd, told CBSNews. “If the damage is not too much, then probably it’s a matter of weeks; if they’re impacted significantly, it might take three months” for the refineries to get back up to full speed.
Related: Gasoline ETF Jumps as Harvey Hits Refineries
According to S&P Global Platts, over one-fifth of U.S. refining capacity has been shut down since Harvey made landfall.
Matthew Peterson, chief wealth strategist for LPL Financial, pointed out that refiners’ inability to produce and distribute refined goods like gasoline has diminished supplies, which in turn has driven up prices. Richard Joswick, an analyst with S&P Global Platts, expects this to be a short-term shock and gasoline prices to only be elevated for one- or two-weeks.
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