Fuel markets jittery in aftermath of Katrina

| 8/30/2005

While there have been no skyrocketing prices yet, rumors are rampant about fuel shortages and the possibility of per-gallon prices approaching the $4 mark in the aftermath of Hurricane Katrina.

Katrina devastated parts of Louisiana, Mississippi and Alabama and shut down about 90 percent of the oil production in the Gulf of Mexico. Katrina had winds ranging from 175 mph while it was a Category 5 hurricane in the gulf. Then dropped to 140 mph as it made landfall Monday morning as a Category 4 hurricane, according to the National Weather Service.

The full extent of the damage to oil production in the Gulf is not yet known, and oil companies say it could take several days to sort it all out.

In the meantime, crude oil surged back up past $70.85 a barrel again in early trading on the New York Mercantile Exchange on Tuesday, Aug. 30, before rolling back to around $69. It hit the $70 mark for the first time Monday, Aug. 29.

Diesel prices hadn’t changed much from Monday. ProMiles reported the national average at $2.634 per gallon, up slightly from $2.61 the day before.

But that doesn’t mean prices nationwide couldn’t still surge as more news of the damage comes in. Highs close to $3 per gallon for regular gasoline were already being reported in some parts of the country. Parts of New York City were reporting diesel prices over $3 per gallon, according to GasBuddy.com.

The Oil Price Information Service reported that wholesale prices for fuel have already seen a spike of as much as 50 cents per gallon in some areas, a number, the service said, will surely transfer to pump prices in the coming days.

Gov. Jeb Bush said Florida could see shortages of gasoline in the coming days as a result of the storm. Bush said the state government is working with the U.S. Department of Energy and the Petroleum industry to bring more fuel in through the state’s ports.

Reuters reported that several refinery operators said their facilities in the Gulf region were unhurt by the storm. However, eight refineries in southeast Louisiana were closed as a result of the storm, while two others slowed their operations.

Relief may come if the federal government decides to release crude oil from the Strategic Petroleum Reserve. The Bush administration has said it is waiting on word from the refiners and oil companies before a decision would be made.

In addition, Saudi Arabia said Monday, Aug. 29, it would boost output by 11 million barrels per day to help offset any shortages caused by Katrina. However, analysts say adding oil to the market will not do much good if U.S. refinery capacity is unavailable to process it.