Ontario gas prices headed for Significant spike in wake of Harvey

Petrol prices are expected to jump 14 cents in Southern Ontario over the next 24 hours, as flood from Harvey continues to shake the North American petroleum market following the storm shut down refineries in Texas and disrupted pipelines across america.

Prices at the pump have jumped over 10 cents over the last week in much of Ontario. Analysts expect a hike of about 5 cents by Friday evening, followed by a further jump of 9 cents on Saturday. That will bring the cost up to 132.9 cents a litre, as families hit the road for the weekend.

Fourteen oil refineries, representing roughly 30 percent of oil-refining capacity in the U.S., have been closed due to the flood water which has devastated Houston and dozens of other cities across the Gulf of Mexico coastline, said Dan McTeague, senior oil analyst with GasBuddy.com. For this, two of the largest pipelines from the U.S. — the Colonial Pipeline, which feeds a lot of the Northeast U.S., and the Explorer Pipeline, which runs from Texas to Chicago — have signalled they’re severely limiting throughput because of a lack of merchandise to transport, increasing the possibility of shortages.

“The Colonial generally moves 2.5 million barrels per day,” explained Mr. McTeague. “To put that into perspective, that is about 10 to 20 percent more than all of the gas demands in Canada.”

Gas retailers in Canada aren’t facing a possible shortage because of the downturn in Texas manufacturing, but Canadian costs depend on U.S. costs, together with Eastern Canada taking its cue from New York, Albany, Syracuse and Buffalo, and a lot of Western Canada looking to Chicago and Minneapolis. Across Canada, gas prices are up an average of 9.5 cents compared with last week.

The Eastern Canadian price increase can be read as a “shot across the bow” to indicate that refineries in Ontario and Quebec do not have excess product to sell in the U.S. market, Mr. McTeague said. “There isn’t plenty of spare wiggle room{}”

In Western Canada, costs also jumped predicated on oil trading in Chicago, said Mr. McTeague. “There is a cascading effect where wholesalers from the east will be searching for spare barrels everywhere they could get them, and they might go so far as Chicago.”

Roger McKnight, senior oil analyst with En-Pro International Inc., said he’s never seen such a significant price increase. However, the majority of the shift has been pushed by pessimistic speculation on the part of oil dealers in the Northeast, he said, adding that it is too early to say whether there’ll actually be a deficit in the U.S.

“Until we put engineers to the refineries to estimate the damage it is all speculation,” he said. A better picture of effect on overall supply will begin to emerge early next week, although petroleum futures contracts are already pointing to a cost reduction of about 2 cents starting on Sunday, ” he said.

Longer term, both Mr. McKnight and Mr. McTeague expect prices to stay elevated.

“This is the time where refineries enter scheduled maintenance, but with all these refineries going into what I will call ‘unscheduled care,’ it will put pressure on those running to go on more,” Mr. McKnight said. That’s very likely to keep prices high and lead to a different spike a few months from now as functioning refineries finally have to go into maintenance, he said.

Courtesy: The Globe And Mail

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