Gas prices are expected to rise on the East Coast after an explosion and fire broke out at the Atlantic Coast’s largest refinery early Friday. The Philadelphia Energy Solutions Refining Complex lit up the skies around 4 am after a vat of butane caught fire.
Although it is still too soon to predict how much of an impact the explosion will have on gas prices, gasoline futures were already up more than 3% by Friday afternoon. Oil prices are also rallying, with Brent crude increasing 0.8% to $65 per barrel and West Texas Intermediate crude up by 0.4% at $57.30 a barrel on Friday.
The Philadelphia refinery can produce over 335,000 barrels of crude oil per day and is one of the few refineries on the East Coast that produce gasoline and jet fuel, meaning gas prices could spike.
While this isn’t great for East Coast residents who may have to pay more at the pump, it is encouraging for oil and gas investors who have been burdened with continuously low prices.
Growing Tensions in Iran Affecting Gas Prices
The Philadelphia refinery fire puts even more pressure on an already struggling oil and gas market, which has been hit by growing tensions in Iran.
Tensions grew when Iran confirmed that the Islamic Revolution Guards Corps (IRGC) shot down a US drone after it violated the country’s airspace, escalating the US-Iran standoff and increasing concerns about military confrontation and disruption to oil supplies.
After the US drone was shot down, President Trump approved a military missile strike against the Middle Eastern country. However, the President called off the planned strike on Iran at the last minute on Thursday, saying it was “not proportionate.”
Iran has threatened to shut down the Strait of Hormuz, a key shipping route for oil, multiple times. However, analysts think this is unlikely to happen as it would have a detrimental effect on Iran as well.
This latest tension comes just one week after two oil tankers in the Gulf of Oman were attacked, which pushed Brent crude oil prices above $62 USD per barrel. Despite being blamed by the US for the attacks, Iran has denied its involvement.
Gas Prices Aren’t Affecting US Demand
Regardless of where gas prices are headed, demand from the US is on the rise. In fact, the US Energy Information Administration (EIA) reported that US gasoline demand reached a record high on the week ending June 14, reaching 9.928 million barrels per day.
Some of the reasons cited for the increase include weaker retail pump prices and the expanding US economy.
According to the EIA, the average US gas pump price fell 6.2 cents per gallon from June 10 to June 17, and the national average of $2.67 per gallon is over 20 cents below levels seen one year ago.
While this increased demand is encouraging, Lipow Oil Associates President Andy Lipow said that the weekly implied demand data from the EIA should be taken with a grain of salt.
“I have seen the weekly demand statistic fluctuate 10% or more from week to week,” Lipow told S&P Global. “So I am waiting to see this elevated demand continue in the data for the coming weeks before drawing any conclusions.”
Another factor that is expected to affect oil and gas prices is a potential rate cut. President Trump has been pressuring the US Federal Reserve to cut interest rates, which hasn’t happened in the last 11 years. Meanwhile, the European Central Bank has also signaled an upcoming rate cut.
Investors will no doubt be interested in how much of an effect the Philadelphia refinery fire will have on oil and gas prices and whether or not the US-Iran standoff continues.
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