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Gas Prices Slowly Decline As Oil Industry Restarts Refineries

Posted on: Wednesday, 7 September 2005, 18:00 CDT

Sep. 7--A remarkable thing happened after Friday's widespread gas hysteria: Fuel prices stopped climbing.

Drivers were paying an average of $3.04 nationwide over the holiday weekend, about a cent and a half less than on Friday, according to statistics reported yesterday by auto club AAA. Prices also declined or held steady in many Maryland communities -- though not in Baltimore, which ticked upward three cents.

The price stabilization was a welcome change from the stunning spikes resulting from Hurricane Katrina supply disruptions. AAA Mid-Atlantic said the 45-cent increase nationally last week was the biggest surge on record, with station owners changing their signs three or four times a day and local rumors about shortages causing panic.

Economists aren't expecting to see pre-hurricane prices for several weeks to several months. But they say the country has hit a turning point.

"I don't think it's likely that there's going to be another spike," said Thorsten Fischer, an energy specialist for Economy.com, a research firm in West Chester, Pa. "The worst fears have already been proven exaggerated."

Demand should fall as it always does after Labor Day, economists say. Typically, Americans consume about 500,000 fewer barrels of oil a day after this major traveling holiday, a decrease of about 2 percent. But more importantly, supply is picking back up.

About 13 percent of U.S. refining capacity was shut down after the storm last week, and many more refiners weren't operating at full tilt because crude oil could not flow through a major pipeline that reaches from the Gulf Coast to the Midwest. Now the share of stalled refining capacity is down to about 7 percent, said Ron Planting, an economist with the American Petroleum Institute in Washington.

More Gulf Coast refineries expect to reopen this week. Power was restored on Friday to the crude-oil pipeline supplying Midwest refineries. Two pipelines that send gasoline to much of the East Coast are back online. And the Louisiana Offshore Oil Port, a major supply route for imports, has jumpstarted most of its operations.

"The industry's putting itself back together," said Jacob Bournazian, an economist with the federal Energy Information Administration.

The International Energy Agency's decision on Friday to release 60 million barrels of oil from the reserves of its member countries over the next month has also helped still the steady drumbeat of price increases.

But the supply improvements will take a while to work their way to the nation's gas stations. Bournazian expects to see a price plateau at the pump for the next two weeks, with a few metro areas seeing slight increases. Don't count on cheaper gas until late September or early October, he predicted.

Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University, agrees, calling the hurricane's effect "a major disruption."

Others are more optimistic. Nigel T. Gault, U.S. economist for Global Insight Inc., an economic analysis and forecasting firm based outside Boston, expects prices will drop the rest of the month to about $2.70 a gallon for regular in October.

Wholesale prices are declining, he noted -- $65.85 for a barrel of light crude yesterday, down $1.61. Gasoline futures fell 13 cents yesterday to about $2.05 per gallon.

"That will feed through at the pumps," he said.

John Leahy's Exxon station in Perry Hall has already pulled back prices. A gallon of regular cost $3.35 yesterday, 14 cents less than on Friday and Saturday. Demand has fallen, he said, and his suppliers think the price trend will continue.

"It's going to keep gradually going down -- at least that's my hope," Leahy said.

Diana Cavey, who owns one gas station in Reisterstown and another in Eldersburg, said her prices hit $3.39 for regular on Saturday and haven't gone up since. Before that, "we were getting 20- and 30- and 40-cent increases at a time, which is unheard of," she said.

The average price for a gallon of regular gas held steady or dropped in most parts of the state yesterday, according to AAA Mid-Atlantic. Maryland's side of the Washington suburbs was a cent cheaper over the weekend than on Friday, at $3.27. The Hagerstown area shed three cents.

But the average station in the Baltimore area added three cents, settling at $3.31 over the long weekend.

Gina Keskula, a computer programmer who lives in Ellicott City, said prices have been dropping all around her -- except at a BP on U.S. 40. Drivers who stopped there yesterday paid $3.49 for regular, 20 cents more than it would have cost them on Saturday. Premium, the grade she buys for her Ford Expedition, was $3.99.

"I was just furious," she said.

Imran Anwar, manager of the BP station, said he didn't want to raise prices but had no choice: Gas hasn't been delivered there since Saturday, and what he has left is rapidly running out. He said he might have to close today, and he was trying to make the gas last.

"Supplies are improving, but not for all the gas stations," said Anwar, who had to explain his situation over and over yesterday to frustrated drivers. "We're losing a lot of customers. We don't know exactly when we'll get [the] next delivery."

Bournazian said the hurricane was particularly ill-timed because it hit just before the most heavily traveled weekend of the year.

On the other hand, it could have been even worse, Gault said. Americans always drive less after Labor Day, which means lower demand and more unused capacity at refineries. Imagine if the hurricane had struck at the beginning at the summer, with high demand and no space at the refineries for more production, he said.

"The impact would have been more prolonged because there would have been that much less room to maneuver," he said.

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Source: The Baltimore Sun, Maryland

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