By Jeannie Kever and Zain Shauk
Pump prices could jump as much as a quarter a gallon over the next week because of oil refinery shut downs ahead of Tropical Storm Isaac, analysts said.
More than 1.1 million barrels of Gulf Coast refining capacity was offline or being shut down Monday because of Isaac’s march toward Louisiana. That amounts to around 6 percent of the nation’s gasoline production capacity, said Andrew Lipow, president of Lipow Oil Associates in Houston.
Those shut downs came as oil companies stopped operations at facilities throughout the Gulf of Mexico. By noon Monday, more than three-fourths of oil production in the Gulf had been halted along with almost half of natural gas production.
And a growing number of refineries were flipping the switches, leaving skeleton crews in place. Some were relocating office workers from Louisiana to Houston to keep projects from stumbling into costly delays, said Dane Groeneveld, North America regional director for NES Global Talent.
More refinery shut downs could be on the way and that will put an immediate, although temporary, squeeze on the nation’s gasoline supply.
About 16 percent of the nation’s gasoline refining capacity is in the path of the storm along the Gulf coast, Lipow said. He predicted gasoline prices could rise between five cents and 10 cents a gallon over the next few days and stay high for several weeks.
They could jump as much as 25 cents in some parts of the country, including Houston, said Patrick DeHaan, senior petroleum analyst for Gasbuddy.com.
The national average price of gasoline Monday was $3.75 for a gallon of regular, according to AAA. It was $3.55 in Houston.
As refineries shut down, “supply starts dropping,” which results in quick price hikes, DeHaan said.
Market concern drove prices for gasoline futures up nearly $7.7 cents in New York Mercantile Exchange trading, to $3.15 per gallon.
The situation is also complicated by an explosion Saturday at Venezuela’s Amuay refinery, which killed at least dozens of people and continued to burn Monday. Venezuelan oil officials insisted the situation was under control, and several analysts said they expect it to have little long-term impact. A Chevron refinery in California that could have helped relieve any strain remains partially offline after a fire earlier this month.
Adding further strain to the gasoline market are current supplies. Inventories are down 7 percent from a year ago and plants that could make up for any production declines are undergoing maintenance, said John Parry, a principal analyst for IHS Herold.
Still, any market strain will likely last only days, if at all, as the storm is likely to weaken dramatically upon landfall, he said. That would allow refineries to start operations quickly, he said.
Marathon Petroleum Corp. was shutting down its Garyville, La., refinery Monday, one of the largest in the nation. The facility has a capacity of 490,000 barrels a day.
San Antonio-based Valero Energy Corp. was in the process Monday of shutting down its 270,000-barrel a day St. Charles refinery, as well as its 140,000-barrel a day Meraux refinery.
Phillips 66 announced late Sunday that it would shut down the 247,000 barrel-per-day Alliance Refinery in Belle Chasse, La.
“Right now, the market is kind of assuming no major impact,” said David A. Pursell, managing director and head of securities for Tudor, Pickering, Holt & Co.
Crude prices ended the day down 68 cents, at $95.47.
Pursell said the market’s reaction was based on the assumption that Isaac won’t be more than a Category One or Two hurricane — current predictions call for it to be a Category One hurricane — and that production resumes within a few weeks in Venezuela.
“The market is betting (Isaac) doesn’t intensify,” Pursell said. “The combination of the Venezuelan fire and the storm bearing down on a part of the Gulf coast with a bunch of refineries, you might expect to see more price action.”
But with a Category One or Two storm, production platforms should restart quickly, he said.
Refineries may be susceptible to storm surge, flooding and power outages, he said.
“But with a Category One, other than shutting down as a precaution, I don’t see much lasting impact.”
Pursell said all energy companies along the Gulf have adapted to the threat of tropical weather in the seven years since Hurricane Katrina.
“More than anything, for those susceptible to any kind of storm surge, they have bigger dikes around them,” he said. “More broadly, whether it’s offshore, pipelines or onshore processing, they all have been strengthened.”