Philadelphia refinery explosion still impacts Midstate gas prices

HARRISBURG, Pa. (WHTM) — Could a 2019 oil refinery explosion in Philadelphia have a bigger impact on gasoline prices now than it did three years ago?

Yes, says a government economist. And the closer you are to the former Philadelphia Energy Solutions (PES) refinery – says US Energy Information Administration (EIA) industry economist Jeff Barron – the more its absence matters.

“Pittsburgh can access alternative sources of supply” more easily than places further east in Pennsylvania, Barron said.

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“Ohio, for example, is a bit more in line with [historical prices]”, Barron said. “I mean, it’s always obviously going to be affected by the same factors – the cost of crude oil, refining costs, all of that.”

But he didn’t lose a giant oil refinery on top of all that. The PES facility was the oldest and largest refinery on the east coast.

Local gasoline prices per gallon depend on several factors. There’s “the price of what they’re pulling out of the ground, which is crude oil – it’s very high right now,” said Jay Shabat, publisher of Econ Weekly.

But you can’t pump crude oil into a Honda Civic or a Ford F-150.

“So when they turn crude oil into gasoline that you put in your car, it costs something, and that price is also very high right now,” Shabat said.

This helps explain why average U.S. gasoline prices are (according to GasBuddy) about a penny off their all-time highs (records set in March), even though crude oil prices are not close to all-time highs: West Texas Intermediate (WTI) Crude is now trading around $103 a barrel, down from $110 on Friday and $125 in March, when the U.S. hit an all-time high of 4.35 dollars per gallon. In July 2008, WTI crude was at $147 a barrel, but gasoline was “only” $4.10 a gallon.

Back then, the world was a financial mess, but not as much of a logistical mess as it is today.

But why are gas prices now a bit higher in Eastern Pennsylvania than in Western Pennsylvania? Which – yes – reverses a long-term trend that was evident just a year ago:

This goes back to the refinery fire. If you remember the dramatic video, remember it was sad (five workers were injured) but could have been worse (no one died), but don’t remember the gas prices went up increased because of it, your memory does not fail you. Gas prices did not rise because the world was logistically strong enough that other sources could meet gas demand.

Then the pandemic hit and the world was a logistical mess, but the demand for gasoline was so low that supply issues didn’t matter. Now the world is still a logistical mess, but “demand is back more or less to pre-pandemic levels,” Barron said – so it all counts.

“And that’s what has contributed to these higher crack spreads, which end up fueling the retail gasoline market,” Barron said. (“Crack spread” is industry shorthand for refining margin, or how much refineries charge to turn crude oil into products like gasoline or jet fuel.)

“If you look at a map of the country, from the middle of the country – it sort of goes down the spine, you know, basically from Texas, down to North Dakota, Montana – that’s where you tend to see the cheapest gas prices,” said Econ Weekly editor Shabat.

It’s also where you see the most easily accessible refineries and pipelines, of any city in Pennsylvania, through Pittsburgh.

Even a complex world has some simple truths.

“Cast matters a lot, and geography matters a lot,” Shabat said. “So if your gas station is right next to a refinery where they process crude oil into gas, chances are the gas will be cheaper than if your gas station is located very far from a refinery.”

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