It’s official: Hurricane Sandy is now the biggest tropical storm ever to hit the northeast U.S. Total damage is expected to rise into the billions and could rival the $15 billion of destruction caused by Hurricane Irene last August. The economic effects are already being felt, particularly in the energy sector.
The path of the storm is aimed directly at a major refining hub along the New Jersey coast, home to more than six large refineries. As a result, refiners are taking far more precaution this time around than they did in the face of Irene. As of Monday morning, two-thirds of the East Coast’s total refining capacity (1.2 million barrels per day) was scheduled to be shut down. Phillips 66, NuStar Energy, Philadelphia Energy Solutions, and Hess all announced varying degrees of plans to close refineries.
The month-long decline in gasoline prices looks to be over, at least for now. Gasoline futures popped by 3.5 percent this morning in New York, according to Bloomberg. Although oil prices in New York fell on Monday, they rose in London. As of 11:30 Monday, the price of West Texas Intermediate was $85.89, down 39¢, in electronic trading on the New York Mercantile Exchange. While in London, Brent Crude was up 11¢, to $109.66 a barrel. As a result, the price differential between WTI and Brent is now $23.81, the widest it’s been in a year, and approaching its record high of $27.88 from last October.
Although the immediate effect of the hurricane has been an increase in gasoline prices, it could ultimately bring them back down again depending on how demand recovers in the densely populated Northeast. That’s a much different situation than what would happen were the storm headed for the Gulf Coast, which at 7.6 million barrels per day, is home to 45 percent of the total refining capacity in the U.S. Shutting down that capacity (as happened after Katrina) would likely have a much bigger impact on gasoline prices. Whereas shutting down demand in the Northeast could serve to dampen those effects.