A WAVE of WORRIES Gas prices: Oil production woes to hit pump

Posted: August 30, 2005

Gasoline prices are poised to hit records after Hurricane Katrina slammed into the Gulf Coast yesterday and roiled petroleum markets.

The storm disrupted oil production in the Gulf of Mexico and closed at least six oil refineries in a region that is crucial to the nation's fuel supply.

"The immediate reaction was a little bit overblown," said Seth Kleinman, an energy analyst with PFC Energy in Washington. "They were pricing in catastrophe" when crude-oil futures topped $70 a barrel in overnight trading, he said.

"It's not catastrophe, but it will cause much higher prices at the pump," Kleinman said.

Light, sweet crude for October delivery jumped as much as $4.67 a barrel to hit a high of $70.80 a barrel before slipping back to $67.20. That was still up $1.12, or 1.7 percent, from its close Friday in New York.

Natural gas for September delivery jumped $1.458, or 15 percent, to $11.25 per million British thermal units in New York. Prices have more than doubled in the last year.

Wholesale gasoline prices in the New York and Gulf Coast markets soared by 25 to 35 cents a gallon after reports that about 8 percent of U.S. refining capacity had been shut down as a precaution ahead of the storm.

The wholesale price for unleaded gasoline closed at $2.06 a gallon on the New York Mercantile Exchange, up 13 cents, or 7 percent. The price had been as high at $2.16 - an 11 percent increase from Friday.

The price spike was immediate at gasoline terminals in the Philadelphia region, where dealers buy unbranded gasoline for sale at independent stations.

Charles Spinelli, comptroller at Edward J. Sweeney & Sons in Vineland, said one supplier at the Woodbury Terminal in Gloucester County had increased the price for regular unleaded by 27 cents a gallon yesterday morning.

The minimum increase he faced yesterday was 12 cents a gallon. The hurricane is "definitely having an affect everywhere," said Spinelli, who was waiting to see if terminal prices would be adjusted downward as the New York markets fell. Sweeney supplies about 20 stations in Pennsylvania and New Jersey.

A major pipeline that supplies the Woodbury Terminal and other points in the Northeast from the Gulf Coast had reduced the flow because of the refinery shutdowns, said Steve Baker, a spokesman for Colonial Pipeline Co., of Atlanta.

The loss of 1.8 million barrels of oil refining capacity on the Gulf Coast could reverberate through the market for a painfully long time, depending on how much damage was done to the refineries and how long it takes to get them running again, analysts said.

Louisiana, Mississippi and Texas are home to more than 40 percent of U.S. oil refining capacity. About one-third of the gasoline for the Northeast comes from the Gulf Coast region.

Oil wells in the Gulf of Mexico normally account for about 30 percent of domestic production, or 1.5 million barrels a day. The storm shut more 92 percent of that, according to the Minerals Management Service, which manages offshore resources.

In addition, the Louisiana Offshore Oil Port, the biggest U.S. oil import terminal, had stopped unloading tankers Sunday. The port is 20 miles off the coast, and handles about 1 million barrels of crude oil a day, or 11 percent of U.S. imports. To help producers and refiners hobbled by the hurricane, the White House said President Bush would consider releasing oil from the Strategic Petroleum Reserve.

Despite the serious impact of the storm on energy facilities, industry observers were still taken aback by the market's response. "The reaction to the storm has been much worse than I anticipated," said Ben Brockwell, editor in chief of Oil Price Information Service in Lakewood, N.J. "It speaks to how fragile people think supply is in the U.S. and the world," Brockwell said.

Contact staff writer Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

Inquirer wire services contributed to this report.

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