Broken BP Refinery Unit Reopens, Falling Gas Prices Should Drop Even More
CHICAGO (CBS) -- The BP refinery in Whiting, Indiana, has restarted a crude distillation unit that helps produce millions of gallons of gasoline each day, two-and-a-half weeks after an outage that led to a major spike in gas prices.
Patrick DeHaan, senior petroleum analyst at GasBuddy.com, said Chicago area drivers can expect to see prices fall by up to 50 cents in the next couple weeks, after BP confirmed it has reopened the crude distillation unit that went offline on Aug. 8.
"With the current average across the metro area already down to about $3.28 a gallon, that's a 20-cent drop versus a week ago, and the lower prices will continue," he said.
DeHaan said gas station owners have been trying to recoup losses from an unprecedented spike in wholesale prices earlier this month, so prices at the pump won't necessarily drop as quickly or as sharply as they rose.
Prices at the pump jumped more than 70 cents per gallon in the days after the largest crude distillation unit at the BP refinery in Whiting suffered a malfunction. According to GasBuddy.com, the average price of a gallon of gas in Chicago went from about $2.77 on Aug. 11 to $3.48 on Aug. 18.
DeHaan said gas station owners were caught off-guard by the sudden surge in wholesale prices after the BP refinery problem, and didn't immediately match the price hike at the pump, so now they'll want to catch up
"The morning after wholesale prices went up 70 cents a gallon, stations were caught only raising prices at a fraction. So now what's happening is stations that were caught by the higher-priced inventory are dropping their prices slowly to make up for losing their shirts when prices spiked," he said.
The rising prices at the pump prompted many politicians, including Mayor Rahm Emanuel and Illinois Attorney General Lisa Madigan to demand an explanation, claiming the outage did not explain the entirety of the surge.
"If politicians want to investigate anything about the way that the market works, they should probably stick their nose in an economics book," DeHaan said.
He also noted Madigan and Emanuel waited two weeks after prices began spiking to demand answers, after prices already had started going back down.
"I think it's a little interesting that Attorney General Lisa Madigan and Chicago Mayor Rahm Emanuel were two weeks late to cry for BP to release more details, and I'm sure they'll seek some political gain now from it," he said.
DeHaan said the outage in Whiting came at the worst possible time, when demand for gas was high with many people taking their last trip of the summer, and the market couldn't afford any decline in gas supplies. He said gasoline inventories in the Midwest already were at their lowest levels of the year before the BP outage.
"When BP's refinery went down, it certainly made those problems much worse," he said.
Another price drop in Chicago is expected in mid-September, when the cleaner summer blend is phased out.