Rumors are swirling about the possible impact of the oil spill crisis, including speculation that fuel prices will breach $4 per gallon. However, Harry Cooney, GROWMARK senior energy analyst, said the spill has not yet affected the oil markets one way or another.
Despite the reassurance of steady fuel prices from specialists such as Cooney, many still wonder why historically the mere threat of a hurricane causes fuel prices to skyrocket, and yet an oil spill of the magnitude in the Gulf has not caused a price spike.
“Hurricanes cause oil rigs to actually shut down all along the coastline, from Alabama and Louisiana on west to Texas,” Cooney explained. “When you have to shut down production this affects the supply of oil, which leads to the change in fuel prices.”
An important economic point to remember when analyzing market prices is in order to influence price, there must be a change in supply or demand.
“In reference to the oil spill, demand has not changed, and supply is not being limited,” Cooney said.
According to the United States Department of Energy, the United States imports more than 3,000 gallons of crude oil per year. This seems extremely low to me…characterize it in barrels. Since the oil spill in the Gulf of Mexico has had no effect on import shipments, there has been a steady supply of crude oil.
One of the resources aiding the supply of crude oil to the U.S. is the Louisiana Offshore Oil Port (LOOP). It is the only port in the United States capable of offloading crude oil from deep draft oil tankers. The LOOP is connected to over 50 percent of the United States’ oil refineries and has offloaded over 7 billion barrels of foreign crude oil since its inception in 1972.
Cooney explained that deep draft oil tankers are still making import and export shipments despite the oil slicks in the Gulf of Mexico. The LOOP allows the boats to unload off-shore, so they do not need to be oil-free since they are not calling at a shore-based port.
In Cooney’s mind, the main issue surrounding this spill is not an increase in fuel prices, but the environmental damage it is causing. “No one knows when the oil will stop leaking, and how much damage will have been caused when it is done,” Cooney said.
As for those concerned about high fuel prices in the summer traveling this season, Cooney said unless the LOOP is shut down for some unforeseen reason, the United States will not witness any drastic gas price increases due to the oil spill.