Storm Sandy Continues to Wreak Havoc on Fuel Market

OPIS Chief Oil Analyst Tom Kloza stressed that the fuel supply is strong and that consumer panic is causing long lines and undue stress at the pumps.

By John Lofstock, Editor

Motorists in New York and New Jersey are facing two-hour lines at gas stations–if they can find one selling gasoline at all.

Lines stretch back in some case three miles as customers wait patiently (and not so patiently in some cases) to fill their cars and gas cans in the wake of storm Sandy. But, according to one leading fuel analyst, it’s the persisting power outages that is making it difficult for consumers to get gasoline, not supply issues.

Demand at stations with power has surged nearly to a boiling point. These stations are now requiring tank deliveries every few hours just to keep up with demand.

In addition, unbranded stations without branded contracts, have limited access to fuel supply as haulers try to keep up with demand at branded stations with supply contracts. As such, throughout the tri-state area of New York, New Jersey and Connecticut, stations selling gasoline are primarily branded marketers with integrated operations like Hess and Sunoco.

Panic Causing Problems
Despite the long lines, Tom Kloza, the chief oil analyst at the Oil Price Information Service (OPIS) in Wall, N.J., reiterated that “there is no fuel supply shortage” and that the long lines and tension building around fuel distribution in is largely due to consumer fright.

“The panic at some pumps is uncalled for and is totally attributable to power losses,” Kloza told Convenience Store Decisions. “Richard Nixon is not president; we are not listening to 8-track tapes and wearing bell bottom trousers. There is substantially enough gasoline in the northeast so that lines should disappear and the worst thing people can do is top off their tanks. I believe social media is fueling some of this unwarranted and unwanted crowd behavior.”

In fact, Kloza said, the supply is so strong, that gasoline prices are headed lower. “While they might be relatively flat in the Northeast over the next ten days, other parts of the country are on the threshold of big drops,” he said. “The nationwide average dipped below $3.50 gal today for the first time since March 6, 2012. It will move lower in the next few weeks.”

While logistics will be challenging in N.Y. Harbor and we can expect to see some choppy futures trading, “there is plenty of output at the Gulf Coast, Canada, etc.,” Kloza said.

In fact, several fuel haulers, such as Atlas Oil, told Convenience Store Decisions yesterday that they would send fuel trucks from the Midwest to the Northeast to help ease consumer panic. Again, despite the additional deliveries and abundance of supply, power outages expected to last through Saturday are hampering the flow of fuel to customers.

Generators for Gas Stations?
One thing to note is that Florida and Louisiana appear to be the only states that require gas stations to be able to switch to an alternative energy source during a power outage. At least one New Jersey state legislator today said she would begin to look at whether the state should offer gas stations owners along evacuation routes in the Garden State incentives to install backup generators for their fuel pumps to ensure emergency vehicles and vehicles for first responders would have access to fuel in during emergencies.

Florida requires motor gas stations near interstate highways or evacuation routes, terminals and wholesalers to have transfer switches and appropriate wiring to transfer the electrical load from a utility to an alternate generated power sources in the event of a power failure. It requires corporations or entities with at least 10 stations in a county to have access to at least one portable generator.

Like Florida, Louisiana requires certain service stations to be wired with a transfer switch and capable of switching to an alternate generated power source in the event of a power outage. But Louisiana’s law applies only to new or completely rebuilt service stations in the southern portion of the state.

California is considering a different approach to the problem. That state is considering a bill that would grant a tax credit of up to $2,500 to a service station that buys and installs an emergency standby generator. A Washington law that provided excise tax credits for alternative power generation devices for gas stations expired last year.

Here are other highlight’s from Tom Kloza, the Chief Oil Analyst for OPIS:

Is there really a gas shortage, or is this just a distribution issue?
TK: There is no gasoline shortage. We are all dependent on utilities for electricity and that includes service stations and bulk terminals. There are logistical challenges, and we’ve seen a bit of consumer panic. The possessive pronoun and verb ‘they say’ is being attributed to all sorts of items, such as ‘they say electricity won’t return until December’ or “they say there’s no gas in N.Y. harbor,” but this is bunk. The panic of crowds is very much in evidence.

Gasoline is actually plentiful at the Gulf Coast and in the Midwest, and the supply problems of the West Coast are ancient history. We are lucky that this is November and not July. November gas demand, particularly in front of Thanksgiving weekend, is notoriously poor and this year it may be quite poor.

How long will this last for? will things get back to normal once the power comes back on?
TK:
I’m sure that we’ll see power returning at various bulk storage facilities and stations on a piece-by-piece basis. The gas lines are evocative of Florida during post-hurricanes and not of the 1970’s oil shortages, etc. However, if consumers and commercial end-users panic, there will be moments where lines beget lines and become a self-fulfilling prophecy.

Over the next few weeks, this is more of a story about demand destruction and the destruction of normal commerce. It is not a story about refinery destruction (like Katrina) since only about 300,000 barrels per day of more than 16-million barrels per day of U.S. refining capacity was temporarily knocked out. New York Harbor is a key import destination for Canadian and European gas, and there are foreign cargoes ready to come abroad–some may be sent to alternative ports north or south of N.Y. Harbor (Philadelphia, Norfolk, Boston, New Haven). We aren’t as dependent on imports of gas as we were as recently as two years ago.

Are people exacerbating this problem by hoarding gas?
TK:
Yes, topping off tanks is akin to stampeding in the theater that has a hint of smoke.

Should people be stocking up now or would we all be better off if everyone only bought what they needed?
TK:
Stay calm and the oil logistics people will come through. This is not the airline industry! The industry won’t contort people or push them into the black holes that they are creating in coach airfare class.

Will there be a domino effect that will raise the prices in other states besides the ones that got hit by Sandy?
TK:
Right now, all oil companies are under the political and regulatory microscope. Prices since last Thursday/Friday have been quite flat in the northeast, and there are many more decreases coming in other states that have yet to catch up with the compelling wholesale drops that we saw in October. You can visit Branson Mo., Oklahoma, South-of-the-Border South Carolina and many other Southeastern and lower Midwestern states and find gas for about $3 per gallon or less. California is dropping steadily as well. We may see flat prices in the northeast but other areas will drop, which is traditional for November.

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