Energy & Environment

Rising gas prices after Harvey threaten Trump economy


Hurricane Harvey delivered a big hit to the nation’s oil industry and the effects could last long after its flood waters recede.

The storm knocked out wide swaths of American refining capacity along the Gulf Coast this week, raising gas prices and threatening to dampen the bright economic picture that President Trump has touted through his first nine months in office.  

The national average gasoline price on Friday was $2.45 per gallon, according to auto group AAA, about $0.12 more expensive than two weeks ago, as refineries in the Gulf remain offline or slow to resume operations.


The group expects prices to go up another dime or more per gallon before the situation stabilizes later in September, said Jeanette Casselano, AAA spokeswoman. Gasoline prices last topped $2.50 nationally in August 2015.

AAA will have a better picture of gas prices by next week, Casselano said, after refineries spend the weekend repairing damage and restarting, and as the markets react accordingly.

But even a short-term surge in gas prices — combined with other economic damage from Harvey — could have a lingering impact on the American economy.

“The negative effect will be not pretty,” said Stephen Moore, a fellow at the Heritage Foundation and former Trump transition energy adviser.

“We’re talking about maybe knocking half a percent, or one percent, off GDP for a quarter or two, higher gas prices for sure, because Houston is the energy capital of the country. … So all those things are negative.”

Moore said he follows a rule of thumb that every penny increase in commercial gasoline prices takes $1 billion to $2 billion out of the economy from consumers.

That means that as prices rise after Harvey, the economy could be hit even harder, including from lost economic production in Houston — the country’s fourth biggest city — and the spending needed for a major federal recovery effort. 

“It’s a question of how much the prices are already starting to rise,” he said. “I don’t know how fast this industry can recover … Could we see gas prices over $3? Potentially. That would be a big hit to consumer finances.”

A disrupted economy, driven in part by stout gasoline prices, could undercut one of President Trump’s most resonant messages with voters. 

While Trump’s approval ratings remain well underwater, Americans tend to give him better grades for his handling of the economy. A Fox News survey this week found Trump with a 41 percent approval rating, but 49 percent of respondents supported his work on the economy. 

The White House got good news on two key economic numbers this week. The Commerce Department said the economy grew at a 3 percent annualized rate in the second quarter, and the Bureau of Labor Statistics reported 156,000 new jobs last month. 

Trump and his advisers touted both numbers, but that message could be overshadowed by a bump in gasoline prices that would hit consumers directly. That would also raise the stakes for a massive tax reform push Trump and congressional Republicans are undertaking this fall. 

“He should make the case that tax cuts will help grow the economy and help get jobs back,” Moore said when asked what Trump can do about the economy after Harvey. 

“He shouldn’t politicize or capitalize: he should say we’re going to take an economic hit, and we’ve got to do something to help the economy and this tax cut will do it.” 

Harvey’s impact on the oil market has many angles. 

The Gulf Coast off Houston contains nearly half the country’s refining capacity, meaning the storm bore down on key energy infrastructure for nearly one week. At its peak, Harvey knocked out nearly a quarter of American refining capacity, reducing the amount of gasoline and other refined products that could make their way to the open market.

Producers shut down the country’s two largest refineries: Motiva’s 603,000-barrel-per-day facility in Port Arthur, Texas, and ExxonMobil’s 560,500-barrel Baytown, Texas refinery. Both remained offline as of Friday, and Motiva has said its operations could stay closed for up to two weeks. 

Traders reacted accordingly. Gasoline futures spiked 13.5 percent on Wall Street on Thursday, raising the likelihood consumers will deal with even higher prices before operations return to normal in the Gulf. 

Harvey also disrupted oil production and delivery. Gulf of Mexico oil drilling slipped during the storm, leading the Energy Department to tap the emergency Strategy Petroleum Reserve this week. 

And the Colonial Pipeline, which transports gasoline and other fuel between the Gulf and the East Coast, also shut down after the storm, ensuring price disruptions miles away from where the storm came ashore. 

Taken together, Harvey has “created considerable uncertainty for gasoline supply and prices, as the area affected by the hurricane is home to much of the nation’s petroleum infrastructure,” the Energy Information Administration said on Friday.

“While we lament the suffering of colleagues and friends in Houston and along the Gulf Coast, the rest of the country is just now beginning to experience the aftermath of Harvey’s effects,” energy analysts at the Center for Strategic and International Studies wrote in another report Thursday.

Americans are certain to notice the effects immediately, especially as the country hits the roads for the busy Labor Day weekend.

“Gasoline prices along the East Coast have already risen to levels not seen in two years,” said the CSIS report.

“And as the nation prepares for the Labor Day weekend, motorists are bracing for higher prices at the pump, conceivably longer lines, and spot outages, especially if a hoarding mentality motivates consumers to transfer tank farm inventories to the gas tanks of their cars.”

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