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Ontario gas prices headed for major spike in wake of Harvey

A ‘Sorry out of service’ sign is placed on one of the gas pumps at a gas station in Athens, Ga., on Friday, Sept.1, 2017. Gasoline prices in the U.S. have risen to new high amid continuing fears of shortages in Texas and other states after Hurricane Harvey's strike.

Joshua L. Jones/AP

Gas prices are expected to jump 14 cents in Southern Ontario over the next 24 hours, as flooding from Harvey continues to shake the North American oil market after the storm shut down refineries in Texas and disrupted pipelines across the United States.

Prices at the pump have already leapt more than 10 cents over the past week in much of Ontario. Analysts expect a hike of around 5 cents by Friday evening, followed by a further jump of 9 cents on Saturday. That will bring the price up to 132.9 cents a litre, just as families hit the road for the long weekend.

Fourteen oil refineries, representing around 30 per cent of all oil-refining capacity in the U.S., have been closed because of the flood water that has devastated Houston and dozens of other towns along the Gulf of Mexico coastline, said Dan McTeague, senior petroleum analyst with GasBuddy.com. With this, two of the largest pipelines in the U.S. – the Colonial Pipeline, which feeds much of the Northeast U.S., and the Explorer Pipeline, which runs from Texas to Chicago – have signalled that they're severely limiting throughput due to a lack of product to transport, raising the possibility of shortages.

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"The Colonial usually moves 2.5 million barrels a day," explained Mr. McTeague. "To put that into perspective, that's about 10 to 20 per cent more than all the gas needs in Canada."

Gas retailers in Canada are not facing a potential shortage due to the slowdown in Texas production, but Canadian prices depend on U.S. prices, with Eastern Canada taking its cue from New York, Albany, Syracuse and Buffalo, and much of Western Canada looking to Chicago and Minneapolis. Across Canada, gas prices are up an average of 9.5 cents compared with last week.

The Eastern Canadian price hike can be read as a "shot across the bow" to signal that refineries in Ontario and Quebec don't have excess product to sell into the U.S. market, Mr. McTeague said. "There isn't a lot of spare wiggle room."

In Western Canada, prices also leapt based on oil trading in Chicago, said Mr. McTeague. "There's a cascading effect where wholesalers in the east will be looking for spare barrels anywhere they can get them, and they may go as far as Chicago."

Roger McKnight, senior petroleum analyst with En-Pro International Inc., said he has never seen such a big price increase. However, most of the change is being driven by pessimistic speculation on the part of oil traders in the Northeast, he said, adding that it's too early to say whether there will actually be a shortage in the U.S.

"Until we get engineers into the refineries to assess the damage it's all speculation," he said. A better picture of impact on overall supply will start to emerge early next week, although oil futures contracts are already pointing to a price decline of about 2 cents starting on Sunday, he said.

Longer term, both Mr. McKnight and Mr. McTeague expect prices to remain elevated.

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"This is normally the time where refineries go into scheduled maintenance, but with all these refineries going into what I'll call 'unscheduled maintenance,' it will put pressure on the ones still running to go on longer," Mr. McKnight said. That's likely to keep prices high and lead to another spike several months from now as working refineries eventually have to go into maintenance, he said.

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