The explosion and fire at the Philadelphia Energy Solutions refinery in Philadelphia on Friday could drive up gas prices across the East Coast, says Ashley Petersen, senior oil market analyst at Stratas Advisors.
Gasoline futures (RB=F) were up more than 3% Friday afternoon.
“We don’t have a lot of gasoline production capacity on the East Coast,” she told Yahoo Finance’s Alexis Christoforous and Brian Sozzi on “The First Trade.” “This was one of the few refineries that did make gasoline and jet fuel, so those prices could see a spike.”
The refinery complex is the largest on the eastern seaboard, and the company says it can process upwards of 335,000 barrels of crude oil per day. Officials believe the fire began in a vat of butane that exploded. Eyewitnesses reported feeling the blast as far away as New Jersey.
The explosion puts pressure on an oil market already being hit by growing tensions with Iran. President Trump said he cancelled a planned strike on Iranian targets Thursday, writing in a tweet that it was “not proportionate” as retaliation for the country shooting down a drone.
That’s helped temper the steady rise in crude oil, which spiked about 10% this week alone.
“We’ve seen these escalating tensions, but we have seen a surprising amount of restraint,” Petersen said. “I definitely think we’re going to see more disruptions throughout the summer, but hopefully it stays more a war of words than anything else.”
Still, it sets up a dilemma for OPEC as the group gears up for its next meeting on July 1.
“Several members of the agreement want to stop cutting production,” Petersen said. “Prices are a little bit higher – although that’s because of geopolitics primarily – and they have to convince members to sort of hold the line and continue to keep those volumes in the ground.”
Iran has repeatedly threatened to shut the Strait of Hormuz, the key shipping route for oil leaving the Persian Gulf. Petersen doubts that will happen because it will hurt Iran as much or more than it would hurt the west.
“They could do it, and that would have a really detrimental impact, but they’d also be shutting off their own exports,” she said. “They don’t have a lot going out, so why would they stop what little they are managing to get on the water and to paying customers?”