September 13, 2008

Approaching Storm Boosts Gas Prices $4 a Gallon Precedes Refinery Loss


Gas prices at many southeastern Wisconsin stations surged above $4 a gallon Friday as Hurricane Ike hit Texas with 105 mph winds, threatening to flood Galveston today and damage the cluster of large oil refineries near Houston.

Retail prices are responding to tightening gasoline supplies caused by the closing of Gulf Coast refineries both this week in advance of Ike's arrival and two weeks ago as Hurricane Gustav slammed Louisiana, said Pam Moen, speaking for AAA Wisconsin.

"How high the prices go and how long they stay high will depend on how much damage Ike does," Moen said.

About 27% of the nation's oil refining capacity sits along the Gulf Coast between Corpus Christi and New Orleans, according to the Wisconsin Petroleum Council.

Volunteers posting prices on the Web site reported regular gasoline selling for $4.09 a gallon by midday Friday at stations in Oak Creek, Milwaukee, Wauwatosa, Brookfield, Waukesha, Sussex and West Bend. One station in Pewaukee was the first reported to reach $4.10.

Depending on the damage left by Ike, the run-up in prices could be short-lived. That's in part because of falling oil prices.

Crude oil on the futures market briefly sank below the psychologically important $100-a-barrel mark on Friday for the first time since April 2 -- showing that investors believe a worsening global economy will continue to drive down demand for some time in the United States and elsewhere.

The fact that U.S. fuel demand is so weak right now might mean the surge in the wholesale price of gasoline -- which rose to about $4.85 a gallon in the Gulf Coast market Friday -- might not be passed along to consumers for long, unless Ike's impact is severe and long-lasting.

On the New York Mercantile Exchange, light, sweet crude for October delivery rose 31 cents to settle at $101.18 a barrel, after briefly sinking to $99.99.

"All week long, it's been a gasoline story more than anything. If you just looked at the crude market independently, you wouldn't know that we had a couple of hurricanes," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, referring to Ike and last week's Gustav.

"This dichotomy could persist for a few more days next week," he said. But "once the storm factor subsides, we'll see a much higher correlation between gasoline and crude oil."

Trading of gasoline supplies on the Chicago market Friday pushed wholesale prices there to $3.85 a gallon by mid-afternoon, Moen said. The boost came as supplies were reduced in the wake of refinery closings.

Though retail prices typically are as much as 60 cents more a gallon than wholesale costs, Moen and other observers do not expect to see such high prices of $4.45 a gallon in Wisconsin.

"Most retailers will recognize that this is a temporary problem and will not be buying gasoline at that high of a wholesale cost," Moen said. "They will wait to buy their next shipment and avoid the spike in prices."

Another reason for optimism is that most of the gasoline sold in Wisconsin is refined in Illinois, Minnesota and the Murphy Oil facility in Superior, not the Gulf Coast, said Erin Roth, executive director of the Wisconsin Petroleum Council.

Supplies could become tighter here as gasoline flows to southeastern states to meet demand there, but there will be no shortages in the Badger State, Roth and Moen said.

Some service station owners Friday might have raised retail prices in advance of anticipated higher costs for their next fuel shipments and to discourage panic buying, Roth said.

"Both retailers and the public need to be calm," he said. "Let's wait and see what the long-term impact of Ike will be."


The Associated Press contributed to this report.

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