Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Sandy brings an unexpected stimulus

October 31, 2012: 11:58 AM ET

Why gas prices could actually decline in Sandy's aftermath.

FORTUNE – After Hurricane Sandy ripped through the nation's east coast earlier this week, one of the biggest storms ever to hit the U.S. is poised to cost billions of dollars due to property damage and lost business days. Despite all the bad news Sandy will bring as the region tries to pick itself up after the massive storm, there might be some relief on the horizon. Look for it in gas prices.

Some economists have suggested that prices at the pump could edge lower, which would be unusual after a hurricane strikes. Prices typically spike, as they often do when storms touch hurricane-prone areas such as Florida. That's because the state is located around the Gulf Coast, a major hub of the nation's refineries that usually must stop or slow operation when a storm strikes.

There are big refineries in the east coast, but nowhere near as many. However, the region is the biggest consumer of gasoline in the country, gobbling up an estimated 5.3 million barrels a day of fuel or about a quarter of the nation's total. And with demand for transportation fuel diminishing as highways, airports and shipyards along the east coast were paralyzed and only slowly resuming operation Wednesday, fuel prices are expected to fall across the rest of the country.

MORE: America's best job creators are slowing down

"For the time being I don't see prices bumping up," says Patrick DeHaan, senior petroleum analyst at Gasbuddy.com, a Minnesota-based website that tracks gas prices. DeHaan adds that he expects prices to either stay roughly where they are or fall further.

As of Wednesday morning, the U.S. average for gasoline was $3.54 a gallon, slightly lower than $3.57 recorded Saturday. Some of the decline could be due to a drop off in demand from Sandy, but prices had been declining for the past few months amid softening demand for oil from slower growing economies abroad, particularly those in Europe.

To be sure, where U.S. gas prices will go next will depend largely on how oil refineries in the path of Sandy will fare. Plants that refine oil into gas had to slow or stop operation to as a precaution. As of Wednesday, about 70% of refining capacity on the east coast was idled due in part to flooding, though gradually resuming operations, according to IHS Global Insight.

Gas price futures for November delivery rose prior to the storm as investors worried about the dent in supply, but fell back on Tuesday as investors expected a drop off in demand. Nonetheless, the region's refineries were viewed as having come out of the storm mostly unscathed, Reuters reported on Tuesday. The east coast's biggest plant, the 330,000-bpd Philadelphia Energy Solutions refinery, has already ramped up operations.

Posted in: ,
Join the Conversation
About This Author
Nin-Hai Tseng
Nin-Hai Tseng
Writer, Fortune

Nin-Hai Tseng covers economics and finance. Before joining Fortune, Tseng was a reporter at The Orlando Sentinel and a public affairs associate at GE. She holds an MPA from Columbia University and a BS in Journalism from the University of Florida. She lives in New York City.

Email | @ninhaitseng | RSS

Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.