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Oil Prices Fall, Gasoline Prices Surge

Posted on: Wednesday, 31 August 2005, 12:00 CDT

Crude oil prices fell in jittery trading Wednesday even after the U.S. government said it would loan oil to refiners struggling in the wake of Hurricane Katrina to keep production of gasoline and other fuels steady. But wholesale and retail gasoline prices leaped higher nationwide.

Some of the knottiest issues still to be resolved will be restoring electricity to Gulf Coast pipelines and refineries, which are also suffering from flooding that could very well have left critical electric motors submerged. It will be days before a full assessment of the damage can be done, industry officials and analysts said.

Meantime, wholesale gasoline suppliers have begun limiting the amount of fuel they sell to retailers in certain markets in order to make sure they do not take delivery of more fuel than they actually need.

Light sweet crude for October delivery on the New York Mercantile Exchange fell 56 cents to $69.25 a barrel, down from an overnight high of $70.65. On Tuesday, oil futures settled at $69.81, the highest closing price on Nymex since trading began in 1983, although still below the inflation-adjusted high of about $90 a barrel that was set in 1980.

But October gasoline futures surged by almost 20 cents to $2.67 a gallon on the Nymex. That is almost 75 cents, or 38 percent higher, than they were on Friday.

"There's too much uncertainty," said analyst John Kilduff at Fimat USA in New York.

While the details were being worked out about how much oil would be loaned from the U.S. Strategic Petroleum Reserve - and which refiners would receive it - European nations began considering the release of their own government-controlled stockpiles of gasoline and heating oil, according to officials at the Paris-based International Energy Agency. The officials demanded anonymity because the consultations were confidential.

In another attempt to ease the crunch on motor fuel supplies, the Environmental Protection Agency said it would temporarily allow retailers in Alabama, Florida, Louisiana and Mississippi to sell gasoline and diesel that does not meet stringent summer air-quality standards.

Gasoline supplies are tightening in these and other states because some major Gulf Coast energy companies, which were already struggling to meet rising demand before Katrina plowed through the region, have been plagued by floods and power outages that have made it impossible to produce and distribute fuel.

At least seven Gulf refineries remain out of service, and will be for days if not weeks. Also, several pipelines that carry gasoline, heating oil and jet fuel to other markets are stymied by disruptions to the power grid.

Source: Associated Press/AP Online

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