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The price of gasoline at the pump could reach $3 per gallon because of the cold snap that froze oil wells and pipelines and caused blackouts that prompted unit shutdowns at several refineries on the Gulf Coast.
Based on media reports, at least 1 million bpd in refining capacity is offline, FreightWaves reports, noting that considering the unconfirmed reports, the capacity taken offline could be double that. And while oil wells can be restarted relatively quickly, refineries may need weeks to return to normal operation.
“What we have is an electric generating problem,” said Andy Lipow, president of Lipow Oil Associates, told CNBC. “You don’t have natural gas, and you don’t have electricity. It’s difficult for refiners to turn crude into gasoline.”
This means a supply crunch in both gasoline and diesel. Even though the stocks of both fuels are above season averages for the last five years because of last year’s demand slump, prices are likely to rise because of the refinery disruptions.
“In terms of $3 a gallon, this simply provides more momentum for us to get there,” Patrick DeHaan, head of petroleum analysis for GasBuddy, told Bloomberg. “The average rise in the national average from late winter to Memorial Day has been 25 to 65 cents a gallon, which could mean we’re right on the doorstep.”
Others, such as Tom Kloza, the global head of energy analysis at Oil Price Information Service, see the problem as a relatively minor one, to be resolved quickly.
“I believe they’ve had orderly shutdowns. They haven’t had any damage or anything knocked out,” Kloza told CNBC. “My guess is this is like a blip in the system, but it’s not a big deal,” he added, expecting the peak in gasoline prices at $2.80 a gallon.
On Tuesday, the average price at the pump in the U.S. was $2.52 per gallon, Bloomberg noted. However, the upward potential may be limited, according to DeHaan, because of continuing movement restrictions enforced because of the pandemic and also because of lower desire to travel amid the Arctic weather.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.