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Texas freeze could send gas prices soaring very soon

Brian Sozzi
·2 min read

If there is to be a first half 2021 economic black swan event the roaring stock market isn't properly comprehending, look no further than a likely spike in gas prices thanks to the deep freeze well underway in Texas.

The national average price for gasoline may jump 10-20 cents a gallon from its existing price of $2.54 a gallon over the next two weeks, says GasBuddy, as millions of barrels of refining capacity has gone offline due to brutal weather in Texas. Such an increase would bring the national average to $2.65 to $2.85 a gallon, marking some of the highest prices since 2019 and loftiest seasonal prices in more than five years.

Gas prices on a national average have leapt about 17 cents from late January, according to GasBuddy data.

GasBuddy estimates that 11 refineries in Texas and Kansas have at least partially shut down due to the deadly weather in Texas. The outfit notes about 20% of total U.S. refining capacity was offline as of Tuesday midday.

Jefferies analyst Giacomo Romeo is a bit more dire. He believes about half of Texas' 5.8 million barrels per day of refining capacity is currently non-operational.

“Even after this event is over, it may take refineries days or even a week or two to fully return to service, and with gasoline demand likely to accelerate as we approach March and April, the price increases may not quickly fade," says GasBuddy head of petroleum analysis Patrick De Haan.

Motorists line up at the pumps of a Shell station for gasoline late Thursday, Dec. 24, 2020, in Lone Tree, Colo. (AP Photo/David Zalubowski)
Motorists line up at the pumps of a Shell station for gasoline late Thursday, Dec. 24, 2020, in Lone Tree, Colo. (AP Photo/David Zalubowski)

GasBuddy estimates gas prices could hit $3 a barrel by Memorial Day as refiners try to bounce back from the storm activity.

As for investors keen on trading the rise in petrol, Jefferies' Romeo thinks refiners could benefit from a profit margin perspective.

"Longer than expected shutdowns could support a greater recovery of refining margins in 2Q and 3Q. Companies with the highest CFFO [cash flow from operations] sensitivity to the oil price are REP, XOM, OMV. In the near term, as PADD 3 gasoline demand recovers, companies with high exposure to the other US regions (PADD2 in particular) as well as Western European refiners are likely to benefit: CVX, BP, GALP and REP in particular," says Romeo.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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