While the horrific destruction that Hurricane Harvey has left in its wake might feel like a nightmare happening miles away, we might end up feeling the after-effects in the UK as well. The RAC has warned that petrol prices could soar across the country, due to disruption at numerous US oil refineries. The hurricane affected the production of a third of the country’s oil refineries (59% of which are on its Gulf Coast), as well as restricting US oil pipelines. In total, American oil refinery output dropped by a quarter, thus increasing US demand for petrol imports, and raising prices in the UK.
Before the hurricane, petrol prices had been expected to remain fairly steady at around 116p per litre (diesel, meanwhile, remains at around 118p per litre and is expected to stay there). But there have now been warnings from the RAC that petrol prices could rise by 4p per litre over the next week, reaching a peak of 121p per litre.
It isn’t just motorists that would be affected; Hurricane Harvey could also affect the UK’s rate of inflation. According to projections made by ScotiaBank, the Retail Price Index (RPI) measure of inflation increases by around 4bp per 1p increase in the price of petrol. The predicted 4p increase in petrol prices would therefore push the peak RPI inflation profile back up to 4.2% year on year for the next month, and make it all the more likely that CPI will hit 3%.
So why are we so vulnerable to fluctuations and events overseas? Since 2013 the UK has been a net importer of petroleum, thanks mainly to a collapse in North Sea oil prices. Meanwhile, the US oil industry is on the rise thanks to the advent of fracking and the removal of certain trade restrictions. As a result, anything that affects US oil will hit the UK hard, both on a personal and a national level.
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