Publications: Notes at the Margin

One Market (September 4, 2017)


Hurricane Harry has wreaked havoc on the US petroleum market. Not surprisingly, retail gasoline prices increased in response. The seven states seeing the largest rises are Georgia, Maryland, Kentucky, New Jersey, Alabama, and Minnesota, according to the American Automobile Association.


Why is Minnesota on the list? One can understand a hefty boost in Alabama, New Jersey, Kentucky, Maryland, New Jersey, or Georgia. These six states receive some or all their supplies from the Colonial Pipeline. The conduit shut down due to the hurricane and has not restarted because the Gulf refiners that supply it cannot provide fuel. Thus, one would expect to see prices go up in these states. But Minnesota is not on the Colonial Pipeline. Minnesota is about as far from it as one can get east of the Rocky Mountains. Why is it on the list?


The answer is arbitrage. The US and indeed the world petroleum market is so connected today that a disruption in one market will lead to price increases in all markets. This week's report provides the details and discusses the causes of Harvey's impact on petroleum markets.


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