Hurricane Irene Could Cause Gas Prices to Surge

Nearly 10% of the nation’s refining capacity lies in just three states — Philadelphia, New Jersey, and Delaware — all three of which lie in the path of one of the worst hurricanes to touch the U.S. in years.  Gas futures are already up 10 cents a gallon this week on fears that the storm could disrupt output from refineries, barge routes, and pipelines along the eastern seaboard.

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Over a million barrels of oil per day is now in jeopardy as Hurricane Irene makes its way up the coast, according to the Oil Price Information Service. While the refineries are likely to shut down for several days, any damage incurred by the storm could keep production down for significantly longer. And when output declines, prices are sure to rise, especially considering the following weekend brings Labor Day and an increase in travel.

Refineries are taking precautions to prevent serious damages. PBF Energy refineries in Delaware and New Jersey have sent their large ships out to sea to prevent them from being damaged by crashing into docks. Refinery is also clearing away debris near drainage pipes and disassembling any construction equipment that could be blown down during the storm, but no decision has been made yet as to whether operations will be partially or fully shut down. ConocoPhillips, which also has a strong East Coast presence, is taking similar precautions.

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While refineries themselves are usually build to weather even a Category 5 hurricane, they rely on electricity from outside sources that could easily be taken out by high winds and flying debris, even those of the Category 2 Irene. Tom Kloza, chief oil analyst at the OPIS, says it would be safer for refineries to simply shut down than risk a power outage while they’re are operating, which could lead to dangerous conditions for workers. Kloza also expects the storm will push retail gas prices up, though both he and Schork say prices are on their way down in the long run. Kloza also reminded that, “Hurricanes are much more reliable demand destroyers than supply destroyers,” as they tend to keep people off the road.