August 30, 2005

Wholesale gasoline tops $3 a gallon on Gulf Coast

By Bernie Woodall

NEW YORK (Reuters) - Wholesale gasoline prices on the Gulf
Coast broke $3 a gallon on Tuesday -- far higher than prices at
most U.S. pumps -- as major refineries remained shut after
Hurricane Katrina, trading sources said.

This could spell a huge spike in retail prices for drivers
throughout the United States in the coming days and in
particular those in the Southeast, where prices are typically
the lowest in the country.

The spike in wholesale prices from below $2 last Friday
came after Hurricane Katrina plowed through the Gulf of Mexico
and made landfall near New Orleans, forcing shut at least eight
refineries in Louisiana and Mississippi and slowing production
from two others.

The shut refineries and plants with reduced production
account for about 15 percent of U.S. refinery production.

On Tuesday, a gallon of gasoline traded in the
Houston-based Gulf Coast physical marketing hub cost about
$3.15 a gallon -- sharply higher than the national average
retail price of about $2.60 a gallon.

Traders were reluctant to guess how high the wholesale
spike will make prices at the pump but some say it's safe to
bet that the price of a gallon of regular self-service gasoline
in the United States will top $3 per gallon by next week.

"Retail prices are going to vary among regions but for all
practical purposes $3 is a floor," said private oil analyst Jim

The spike could spread across other regions of the United
States due to the shutdown of two fuel pipelines from the Gulf
Coast to the Northeast, including the massive Colonial

"This tightness of supply in the Gulf Coast is going to
spread," said Ritterbusch, of Galena, Illinois. He said the
shutdown of a major fuel pipeline from the Gulf Coast to the
Northeast could push prices up in other regions.

"This thing has tentacles that are going to stretch all
over the place," Ritterbusch said.

The Colonial Pipeline carries about 1.3 million barrels per
day of gasoline and distillates from the refining hub of
Houston along the Gulf Coast through Atlanta, Greensboro, North
Carolina, the Washington, D.C. area and terminates at the New
York Harbor.

In addition to the refinery shutdowns, about 92 percent of
Gulf of Mexico crude oil production was shut on Monday as a
result of Katrina, the U.S. Minerals Management Service said,
triggering worries that refiners may not have adequate
feedstock when they restart.

Citgo Petroleum, a subsidiary of Venezuela's PDVSA, said on
Monday it formally requested oil from the U.S. emergency
stockpile to keep its refinery in Lake Charles, Louisiana,

A switch to easier-to-produce autumn grade gasoline later
this week is expected to bring prices lower, some dealers said.