The power of Mother Nature is mysterious and frightening. Hurricane Harvey showed little patience and no mercy for the city of Houston, and the people who are the city. The media coverage of this disaster has been emotionally overwhelming throughout the footage and stories they present, and the heartfelt commentary they paint. So full kudos to them – a rare gesture on my part because I just don’t kudo.
What I find equally mysterious and frightening are the callous and insensitive questions directed my way, in which some, not all, consumers ask with doe-eyed innocence, “Why should this problem in the Gulf of Mexico mean anything to us great white northerners?” In other words, “Why are our gasoline pump prices going up when we are refining our crude in our own refineries?”
I believe I have run this narrative three times, so here goes number four. By the way, five strikes and you’re out.
Pump and rack prices for refined products in this country are not made, fabricated, or colluded in this country, but follow the published for all-to-see rack price changes at benchmark U.S. locations with the partner links as follows: Halifax-NYH; Montreal-Albany; Toronto-Rochester/Syracuse; Prairies and Northern Interior B.C.-Minneapolis; and Vancouver and Lower Mainland-Seattle.
Although Western Canada tends to follow crude more than rack changes, if the U.S. racks move radically, then the emphasis switches from crude to rack prices. If U.S. prices move up or down, why then should those in Canada follow?
If prices move up in the U.S., then those in Canada move up as well because if they didn’t then U.S. buyers would come across the border to purchase gasoline or diesel, creating domestic shortages here and price spikes. Matching the U.S. increase therefore ensures that product remains in Canada with prices not being subject to outside influences.
That is what is happening now but to the nth degree – 20% of U.S. refinery capacity is now offline and will be until damage assessment and repairs can be completed. Flooding causes power outages. Refineries need power to pump crude into their refineries and then to pump refined products out into pipelines that also need power to pump these same products along pipelines to market.
So, refineries are down and gasoline production is down.
This means the two key pipelines that carry gasolines (diesel as well as jet fuel) – the Colonial from Houston to Camden, New Jersey, and the Explorer from Houston to Chicago – are running at reduced rates due to lack of product to ship and questionable power capabilities.
This also means that the end and spur point wholesale prices for both lines are spiking, which means all of the U.S. East Coast to New York and Ohio, and all of the Midwest Chicago orbit. And to top it all off, rack and pump prices will move upwards in tandem at mirror geographical locations in Canada.
The combined refinery systems in the U.S. and Canada are a highly complex cooperative chain of supply – and right now the linchpin in the chain needs repair.
But repair it they will. If Houston has a problem, then Houston will find a way.
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