Watch CBS News

Gas prices keep climbing as Harvey shutters oil refineries

Harvey's gas price impact
Hurricane Harvey's impact on gas prices 01:24

DALLAS --  Tropical Storm Harvey is sending pump prices higher for motorists and causing temporary shifts in the flow of oil and gasoline around the world after taking down a huge chunk of U.S. refining capacity.

Retail gas prices in the U.S. climbed 2 cents a gallon on Wednesday and have rise 7 cents in the past week, to a national average price of $2.42 per gallon, according to Gasbuddy.

"In terms of product price increases, it might get worse before it gets better," said Rob Smith, an energy analyst with IHS Markit.

It will be days or even weeks before the energy sector in the southeast Texas Gulf Coast is back to normal operations. The region accounts for about 3 percent of the U.S. economy and is a crucial export market for oil and chemicals.

Harvey makes landfall again 04:36

Wednesday brought news that the nation's biggest refinery, in Port Arthur, Texas, had begun a complete shutdown, the latest domino to fall among Gulf Coast refineries.

The facility lies along the border with Louisiana, a hub for refineries that collectively account for more than 12 percent of the nation's refining capacity, according to IHS Markit.

More than one-fifth of U.S. refining capacity has been shuttered since Harvey made landfall on August 25, according to S&P Global Platts.

Mathew Peterson, chief wealth strategist for LPL Financial, noted that refiners' inability to produce and distribute gas is weighing on supplies, driving up prices at the pump.

It could take two weeks or longer before big refineries in the Houston area can recover from a record-setting deluge and resume normal operations. That assumes they didn't suffer serious damage, which is still unknown.

"Only when the water is gone will refineries be able to estimate how much damage they have -- presently, it's very difficult," said Ehsan Ul-Haq, director for crude oil and refined products, Resource Economist Ltd. "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.

Gasoline futures headed higher for a third straight day. They had climbed 10 cents to $1.88 a gallon Wednesday.

Harvey isn't the first big storm to hit the refinery-rich Gulf Coast, but the oil industry has undergone big changes since the last major interruption from Hurricane Ike in 2008.

The so-called shale revolution has led to a surge in oil production in the U.S., increasing the nation's exports of crude oil and gasoline to Mexico and other places in Latin America, and diesel to Europe.

When the U.S. can't produce enough gasoline or diesel to meet export demands, other regions are forced to look for replacement supplies "and the backfill has to come from further away," said Richard Joswick, an analyst with S&P Global Platts. "It has to come from Asia even."

The result will be higher prices, but it should be just a one- or two-week problem, Joswick said.

Source: AAA

Patrick DeHaan, an analyst for GasBuddy, predicts that U.S. gasoline prices will top out around $2.50 or $2.55 a gallon, an increase of up to 20 cents since Harvey hit, with bigger spikes closer to the Gulf.

The recovery from Harvey will mimic the storm's path from west to east. Flint Hill Resources' refinery in Corpus Christi, where Harvey made landfall as a Category 4 hurricane, could begin to restart -- a process that takes days -- as early as Wednesday. Other refineries in the area are likely to do the same later this week.

"It takes some time to start up a refinery under normal circumstances, and it wouldn't be surprising if they run into hiccups," said Smith, the IHS Markit analyst. "It could be a week if not longer before Corpus Christi is at normal operations."

Houston furniture store owner opens doors to flood victims 04:36

Exxon, Shell and other companies have reported to Texas regulators that some of their storage tanks and other facilities near Houston were damaged by the torrential rains and flooding. Most of the reports seem to indicate relatively minor damage, but still it could be days before crews can assess matters and make repairs.

Even once the refineries are running, pipelines and ports are needed to carry their gasoline, diesel and other fuels to consumers.

A major pipeline supplying the East Coast with gasoline remains shut down - partly because with refineries closed, there is nothing to ship, but also because of damage in at least three areas. Another pipeline that carries crude from the big Permian Basin field in Texas to Houston-area refineries is also closed.

View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.