Hurricane divergence
Hurricanes are known for pushing up the price of gasoline while dropping the cost per barrel of oil. An interesting thing always happens after large hurricanes come from the gulf, the price of oil drops while the price of gasoline always rises. There are a few reasons as to why the prices do this.
First and foremost, the refineries that turn oil into usable gasoline are all positioned along the Gulf coast in states like Texas and Louisiana. When hurricane force winds roll through these parts of the United States, the refineries must be shut down and unmanned. The risk of explosion or larger problems associated with leaving a refinery in production cancels out the possible economic benefit of staying in production.
When refineries are turned off, they don’t use any oil, thus the use of oil drops while refineries are shut down. After Katrina, the price for oil dropped dramatically after a modest uptick as the actual amount of backlogged oil could now be seen.
When hurricanes come through it should always be expected that the price for gas will rise, and oil only if the hurricane is powerful 50-100 miles from the coast. Most oil drillers in the gulf of Mexico are able to sustain strong winds before the rigs have to be moved. Taking a few rigs out of production is very minor compared to taking a refinery out of production. Refineries in the southern United States are responsible for an overwhelming portion of the gasoline supply whereas Gulf of Mexico rigs produce just a few percentage points of supply.
