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John Crudele

John Crudele

 Business

Gas prices from Harvey fallout should slowly drop

By
John Crudele
Published Sep. 7, 2017, 12:31 a.m. ET

Fair is fair. It’s time for a big drop in gasoline prices.

The cost of fuel soared nearly overnight in the past two weeks because Hurricane Harvey hit Texas hard and caused the closing of some gasoline refineries. Now that Harvey is gone — and the upcoming Hurricane Irma, as threatening as it is, isn’t likely to reduce gasoline production — it would be fair for prices to come down overnight.

But don’t count on it.

Gasoline prices have always been quick to rise and “sticky,” as the experts euphemistically say, when it’s time for them to fall. And that is likely to happen this time as well, especially if our elected officials allow producers and gasoline stations to continue their hurricane-related price gouging.

According to the American Automobile Association, or AAA, the most recent average retail price for gasoline in the US was nearly $2.65 a gallon.

That was 27 cents a gallon more — 10 percent higher — than just one week earlier.

It isn’t as though Hurricane Harvey actually made a dent in the ample amount of gasoline available in this country. So, the supply-demand model isn’t at work here.

There’s still 23.7 weeks’ worth of gasoline in storage in the US. The same as the week before, and the week before that.

And crude oil, which is refined into gasoline, was piling up in storage tanks and on ships while Harvey was doing its dirty work. So gasoline refiners will have too much crude to work with now that they are back in action.

Speculators who wanted gasoline prices to rise so they can profit from trades also got lucky because Harvey hit right before the Labor Day weekend, which was the final hope for a rise during “peak driving season.”

But now that the peak, which starts on Memorial Day weekend, is officially over, the price of gasoline should drop on that fact alone.

Gas prices have already fallen sharply in the futures market, where bets are made based on what investors think gasoline prices will do in the weeks and months ahead.

On Tuesday, gasoline futures declined a very large 6 cents a gallon even though the Irma threat is still going strong. And the price of near-term futures contracts fell again.

So, I’m waiting for a 27-cent-a-gallon drop in gasoline prices. The longer these high prices remain, the more consumers are being cheated.