Friday, February 19, 2021

Gas prices to rise as winter storm rages, shutting refineries, stores and delaying shipments. Is $3 fuel coming?

 Gasoline prices continue dropping all across the United States. A gallon of regular gas has hit an average price not seen since the end of February 2019. 

Gasoline prices are expected to rise 10 to 20 cents a gallon in the coming days after winter storms knocked out about a dozen refineries in Texas, capping a sharp run-up in prices since Halloween and possibly heralding a move toward $3 by summer as the pandemic eases.

Regular unleaded gas averaged $2.54 a gallon nationally Wednesday, up two cents from the previous day, according to AAA.

The storm also has disrupted package deliveries to consumers and product shipments to retailers, possibly leading to shortages of some items on shelves. And it has shut hundreds of stores and factories.

The refinery outages have removed 3.5 million to 4 million, or about 20%, of the nation’s oil refining capacity, according to fuel-saving app GasBuddy and the Oil Price Information Service (OPIS). The refineries shut down due to power outages and shortages of natural gas, which are needed to run the facilities, says Tom Kloza, chief global head of energy analysis at OPIS.

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Refineries also don’t work well in subfreezing temperatures, says Patrick DeHaan, head of petroleum analysis at GasBuddy.

Wholesale gasoline prices have edged up 10 to 14 cents a gallon and retail prices should follow by Monday, Kloza says.

$60 crude oil 

Pump prices already have jumped from $2.10 a gallon in late November, DeHaan says. That followed a surge in crude oil prices in the wake of OPEC production cutbacks and anticipation of a spike in global demand by late spring as a COVID-19 vaccine becomes widely distributed, DeHaan says. Since late October, West Texas Intermediate, the U.S. benchmark crude oil, has climbed from about $35 a barrel to $61.

Also pushing up pump prices in recent months is low refining capacity, says analyst Phil Flynn of the Price Futures Group. Refiners have grappled with weak U.S. gasoline demand and thin margins amid the health crisis, as Americans drive less and air travel pulls back sharply. Some refiners have gone out of business while others have scaled back capacity because of both low demand and worker shortages due to COVID, Flynn says.

Gas prices will likely average about $2.70 a gallon within days, analysts say, but should fall back near current levels by March. But Flynn and DeHaan say refiners will begin to switch to cleaner – and more expensive -- summer gasoline blends next month, nudging prices higher again.

$3 gas by spring?

Flynn says widespread vaccinations and Americans’ return to the road will likely push gas prices to $3 a gallon by late spring. DeHaan predicts $2.60 $2.80 but says $3 is possible.

“The era of low gasoline prices has ended and we are entering a new era of higher prices,” Flynn says.

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Kloza believes such forecasts are overstated. Stronger demand is already priced into crude prices and he doesn’t think they’ll rise much higher. OPEC, he notes, plans to boost production within months.

“It’s not a march to $3,” he says. To get to $3, you really need to get $80 a barrel.”

Other effects of the winter storm:

Empty store shelves

As a result of power outages or severe weather, many manufacturers shut operations, a big chunk of truck and rail transportation was idled, and many retailers couldn’t accept deliveries, says Tracy Rosser, executive vice president of operations for Transplace, a logistics consulting company.

All told, about 20% of product shipments scheduled Wednesday in Texas, Louisiana, Mississippi and Arkansas did not occur, says Rosser. Snarls also have started to emerge in Massachusetts, Michigan, New York and Ohio.

In the next week or two, consumers, particularly in the southern states, may not find certain items on store shelves, including paper products, canned goods and beverages.

Stalled Fedex package deliveries

Fedex says the storm caused significant disruptions at its Memphis World Hub, though it “continues to move COVID-19 vaccines where and when possible.” UPS closed sorting at its main Dallas hub earlier this week, creating bottlenecks in Texas for local delivery and for sorting to other destinations, says John Haber, CEO of Spend Management Experts, a supply chain consulting firm.

Walmart, CVS store closures

CVS has closed about 600 stores in states affected by power outages, mostly in Texas, Oklahoma and Louisiana. Walmart closed up to 500 stores in the South and Midwest, Haber says. Walgreen closed about 200 stores in Texas, according to the New York Times.

GM plant shutdowns

General Motors halted production at its highly profitable pickup plant in Fort Wayne, Indiana, as well as three other plants, affecting about 4,800 workers. Ford Motor Co. shut production of its hot-selling F-150 and Transit Vans for a full week in Kansas City, Missouri. Toyota Motor Manufacturing idled first shift production of its Tundra and Tacoma pickups in San Antonio, Texas. And Nissan North America said first and second shift production at all four of its U.S. plants was temporarily suspended for the second day in a row.

Contributing: Jamie L. LaReau of the Detroit Free Press

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