WASHINGTON -- Leaving damage in the billions of dollars and millions of people from the New Jersey coast to central Pennsylvania still without power, superstorm Sandy launched a deluge of destruction, the effects of which will probably be felt for weeks to come.
Among the looming concerns is its impact on gas prices and the region’s fuel supply. A growing consensus among retailers and other industry observers appears to be neutral and lackluster, even after such an intense event, massive refining shutdown and inevitable supply disruption.
“While the storm reduces gasoline and diesel supply to terminals from pipelines and refineries, it also reduces demand, with very few cars on the road,” Dan Gilligan, president of the Petroleum Marketers Association of America (PMAA), Arlington, Va., told CSP Daily News. “So it’s difficult to predict how the market will react.”
An astounding 70 million people fell within Sandy’s reach, with some enduring flooding, power outages, snow storms and even fire, while others merely light rain. But despite the range of effects, a reach that wide may allow falling demand to trump supply concerns, according to the Consumer Energy Report.
Essentially, the storm depressed regional fuel demand in an area that is a major net consumer of refined fuel products, noted the report. While a bearish outlook saw prices rise marginally just after the storm passed in many areas, analysts expected that the lowered demand and the expected safety of the many refineries clustered in New Jersey and Pennsylvania will see costs at the pump at some of their lowest points later this week.
“While motorists would expect gas prices to surge with Hurricane Sandy, … the storm has not yet caused prices to spike,” said Jessica Brady, spokesperson for AAA, Heathrow, Fla. “Despite Sandy, retail gas prices are forecast to fall further this week, and the downward trend is expected to continue into the Thanksgiving holiday.”
“So many people filled up Monday that we expect low gas sales the next couple of days,” Fran Duskiewicz, senior executive vice president for the 86-store Nice ‘N Easy chain in Canastota, N.Y., told CSP Daily News, “which is probably a good thing because we don’t know when the refineries will fire up and get gas moving along the pipeline.”
With stocks trading down the day after the storm, Duskiewicz said, “[it] indicates that traders think demand will be very low for a while, driving up inventory levels. This could change if the refineries don’t get back up and running soon.”
The 86-store chain fared well through Hurricane Sandy in that it never received the brunt of the storm. Duskiewicz said some franchise stores closed Monday night as a precaution, but corporately the chain stayed open and faced few issues. “Somehow the worst weather stayed around us,” Duskiewicz said.
Retailer Wawa Inc., out of Wawa, Pa., did close stores in areas where people had to evacuate--posting 157 closed sites on its website as of Tuesday afternoon. Via the website, it updated its efforts saying work “is underway throughout the region to recover … from the impact of Hurricane Sandy. Wawa internal and external teams are working to restore the operations in hundreds of Wawa stores throughout its five-state area, … keeping safety top of mind.”
Widespread power outages continued to impact Wawa’s region yesterday afternoon, the chain said. As power is restored in those areas, teams will begin the process of reopening.
Power outages could play a big role going forward. “It’s a huge concern,” said CNBC energy analyst Matt Smith. “Refining utilization in the northeast makes up 7% of the total of the U.S. The three refineries in New Jersey, 240,000 barrels a day, is already shutting down and the other two are cutting back on rates and so that’s really why we’re seeing gasoline prices spike up.
When asked about the impact of a longer power outage, Smith relayed a sobering forecast. “If we do see power outages, that would knock refining for perhaps a week,” he said.
Outages are playing in important role at the terminal, according to Don Thibodeaux, director of operations, Fuel Center, for FuelQuest, Houston. Boding well for supply to the area, he said the Colonial Pipeline, which starts in Texas and ends in New Jersey, is undamaged. “So it’s not the pipeline, but the terminals, many of which have lost power and are unable to distribute fuel,” Thibodeaux told CSP Daily News. “That’s where the predominant issue is.”
As recovery efforts continue and the true effects of Sandy on fuel prices reveal themselves, the bullishness among traders still exist. According to the Wall Street Journal, that argument rests on the steady fall of East Coast refining capacity in recent years. Gasoline inventories and its blending components were 2% below the minimum of the range for the past five years as of Oct. 19. For distillates, which includes diesel, the gap was 20%.
East Coast stocks also look relatively low in terms of demand cover, the Journal reported. In July, the latest month available, there was enough gasoline to cover 16.7 days of the region’s consumption, slightly below the five-year average. That has likely deteriorated since then, the Journal said. Once again, distillate stocks are even tighter: They were already below the five-year minimum back in July, making them a safer bet than gasoline for those hoping for higher prices.
Tighter supplies and Sandy’s projected path—straight toward the East Coast’s main refining hub—make this storm a bigger deal than last year’s Hurricane Irene. Refineries closed in anticipation of Irene, but having been largely spared, they reopened quickly and 2011’s pre-storm price spike collapsed.
Sandy looks like “less of a head fake,” the Journal said.