Hurricane Harvey is plowing through the Gulf of Mexico oil fields and heading toward the Texas coast.
The storm comes a dozen years after Katrina, then Rita, slammed the region, damaging oil rigs in the Gulf and refineries along the shore. Consumers with long memories may recall that gasoline prices surged in the aftermath.
Will history repeat itself? Industry analysts — and the oil market itself — are saying probably not. Despite the threat to oil production and refining capacity, oil prices went down Thursday.
Bloomberg News reported a 2.6% one-day drop in crude prices, mainly because only a few oil platforms had shut down in advance of the storm. The market, in fact, doesn’t seem to be too concerned that the massive amounts of rainfall threaten to flood Texas refineries.
Kyle Cooper, director of research with IAF Advisors in Houston, explained to Bloomberg that the extremely heavy rainfall will also drastically reduce demand, at least temporarily, so the two will balance out.
Different story in 2005
It was a very different story in 2005, however, after two devastating hurricanes badly damaged the Gulf’s oil and gasoline production capability. In the years before the storms, retail gasoline prices were steadily rising.
In 2003, the national average gas price was $1.56 a gallon. A year later it had climbed to $1.85. But after Katrina and Rita, it shot up to $2.27.
All over the country, states cracked down on alleged price-gouging. As we reported at the time, New Jersey inspectors visited 400 gas stations and wrote up 100 of them for violating state gasoline price regulations.
At the time, New Jersey Consumer Affairs director Kimberly Ricketts said she, along with the state’s motorists, expected gasoline prices to fall once the Gulf refineries resumed full production. But that didn’t happen.
$3.25 a gallon three years later
Gasoline prices rose each year, not because of interruptions in supply but because the world economy, led by China and India, was said to be heating up. In 2008, months after the U.S. entered the Great Recession, gasoline prices topped out at a national average $3.25 for the year.
Fortunately for consumers, very few expect anything like that to happen this time. For one thing, AAA reports there are ample stockpiles of gasoline, so the market should be able to handle a short-term supply interruption.
For another, market speculators may not play the oil game like they did after 2005. Then, global economic growth was used to justify climbing oil prices. There was a theory that the world was approaching peak oil production, with declining supplies — and higher prices — for the foreseeable future. The smart money kept buying oil futures.
Then the fracking revolution came along, increasing supplies and forcing the Saudis into an oil price war in the vain hope of driving the frackers out of business.
Today, the prevailing wisdom on Wall Street holds that oil isn’t the future, that electric cars are. They might be, but in the meantime, consumers driving gasoline powered cars probably aren’t going to face dramatic price hikes for fuel.