Sandy’s impact on gas prices

Many industry analysts have been predicting that gas prices could move higher in the short term, but the overall dynamic favors lower prices due to demand destruction, according to a report released on Wednesday by AAA.

Unlike Hurricane Isaac earlier this year, Hurricane Sandy will impact an area that is a major consumer of gasoline rather than a major producer. Although anticipated lower regional production and storm concerns have pressured wholesale gasoline prices higher, the impact of demand destruction is likely to be even greater, as nearly 9,000 flights have already been canceled and tens of millions of motorists will stay home during the storm.

Gasoline demand at this time of year is usually near 8.5-million bpd but the expectation following Hurricane Sandy is at least one-two million fewer bpd for the next several days. This drop in demand has the potential to pressure pump prices lower, especially in regions like the Gulf Coast, which normally supply product to the East Coast but will not feel the direct effects of the storm.

Early reports following Hurricane Sandy indicate that damage to the regional refineries is minimal. Assuming a smooth restart to production and distribution following Hurricane Sandy, AAA expects that gas prices across the country will continue to drop leading up to Election Day and will move even lower approaching the end of the year.