• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Nation's Retail Gasoline Prices May Soar

Posted on: Tuesday, 30 August 2005, 15:00 CDT

Aug. 30--Hurricane Katrina rattled energy markets on Monday, sending crude oil to a new intraday high and setting the stage for a sharp rise in retail gasoline prices this week.

"We've never seen anything like what we're going through," said Ben McClenahan, general sales and marketing manager for Virginia Beach-based Papco Oil Co.

"Every time one of these hurricanes comes through on the weather forecast, it sends the oil markets into this frenzy."

How much more consumers will pay at the pump is a big question mark, said Jacob Bournazian, an economist with the Energy Information Administration in Washington.

"Pretty much, predictions are off," Bournazian said Monday. "It's too early to make any definitive statements until you can assess the damage from the storm."

The storm hit an area crucial to the U.S. energy infrastructure -- offshore oil and gas production, import terminals, pipeline networks and numerous refining operations in the southern states of Louisiana and Mississippi. The Gulf of Mexico normally produces 2 million barrels of crude oil a day, or about 35 percent of the nation's domestic output, according to government and industry data.

Bournazian said he expects prices at the pump to rise by 15 cents in the next three days, and to average $2.80 per gallon nationwide within the next two weeks.

A gallon of regular gas in Hampton Roads averaged $2.574 Monday. A month ago, it averaged $2.240; a year ago, $1.802, according to AAA.

Gas station managers said Monday they are not sure exactly how high prices will rise in the aftermath of Hurricane Katrina.

"Everybody's just sitting and waiting to see what's happening," said Mickey Cleveland, who owns the Knells Ridge BP on Battlefield Boulevard in Chesapeake and two other stations.

"We're kind of in the dark about everything," said Cleveland, who predicted that gas prices would rise by 10 cents a gallon by this morning. "Until things clear up, we can't tell how severe this thing is."

Dominion Resources Inc., the Richmond-based electricity and natural gas holding company, said Monday that it probably won't know until early next week how much damage the hurricane inflicted on its oil-and-gas platforms in the g ulf.

"It will be at least Wednesday before we'll be able to fly over them" to inspect for damage, said Dan Donovan, a Dominion spokesman. However, Dominion won't know the full extent of any damage until workers return to the platforms, which could take a week, he said.

Normally, Dominion produces almost 400 million cubic feet of natural gas and gas-equivalents a day from its wells in the g ulf, Donovan said. For the January-through-June period, Dominion's exploration and production operations generated $301 million in operating income -- more than a third of the company's operating earnings for the first half of 2005.

The company's exploration and production unit evacuated workers from its g ulf platforms and suspended operations at its wells in Louisiana last week. Donovan said Dominion also is concerned about the extent of damage to its downtown New Orleans office building, where 400 workers manage the company's oil-and-gas operations in the g ulf. That work could be shifted temporarily to a Dominion office in Houston, he said.

The Bush administration said it would consider lending oil from the nation's emergency stockpile to companies that request it, possibly easing somewhat the impact of the storm on oil prices.

"We're losing a lot of crude oil and also a lot of natural gas," said Lawrence J. Goldstein, president of the New York-based nonprofit Petroleum Industry Research Foundation. Goldstein estimated that total refinery production of gasoline, heating oil, diesel and other fuels could fall by as much as 20 million barrels over the next 60 days.

Royal Dutch Shell PLC said on its Web site that two of its drilling rigs equipped with tracking devices -- one operated by Noble Energy, the other by Transocean -- had "drifted off location." The company said it would send aircraft to check the status of its assets "as soon as it is safe to do so."

On Monday, several refiners reported damage at their plants appeared to be minimal, and oil prices retreated from the day's high of $70.80 a barrel. But analysts said that once the damage assessment is known, prices could run up again.

Based on conversations with oil and gas companies operating in the Gulf of Mexico, Goldstein said it appeared that Katrina would not curb output for as long as last year's Hurricane Ivan, even though the short-term impact was significant.

Wholesale gasoline prices in the New York and Gulf Coast markets soared by 25 to 35 cents a gallon on Monday following reports that as much as 10 percent of U.S. refining capacity had been shut down as a precaution ahead of the storm. One analyst said pump prices nationwide would likely average more than $2.75 a gallon by week's end, up from about $2.60 a gallon Monday.

"Unfortunately, I don't think $3 a gallon is a hyperbolic number in some markets anymore," said analyst Tom Kloza of Wall, N.J.-based Oil Price Information Service. He emphasized that the market reaction is a reflection of supply tightness, not shortages.

Chevron Corp., Royal Dutch Shell PLC, BP PLC, ExxonMobil Corp. and others began evacuating workers from the region over the weekend. The government said 615 platforms and 96 rigs were evacuated. As a precaution, refineries capable of processing 1.6 million barrels a day were closed, while others reduced their production levels.

Light sweet crude for October delivery settled Monday at $67.20 a barrel, an increase of $1.07. Crude futures settled at $67.49 last Thursday, the highest closing price since oil began trading on Nymex in 1983.

But oil prices would need to rise to about $90 a barrel to match the highs of 25 years ago, when adjusted for inflation.

While the precautionary shutdown of oil production and refining roiled oil markets, analysts said the storm's potential long-term damage to facilities was the bigger worry.

Hurricane Ivan resulted in the loss of nearly 44 million barrels of oil production between September 2004 and February 2005.

PVM Oil Associates in Vienna, Austria, said Katrina had the potential to do more damage to southeastern Louisiana than Ivan, which damaged seven platforms and 100 underwater pipelines.

Staff writer Tom Shean and The Associated Press contributed to this report.

-----

To see more of the The Virginian-Pilot, or to subscribe to the newspaper, go to http://www.pilotonline.com.

Copyright (c) 2005, The Virginian-Pilot, Norfolk, Va.

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

D, SC, RD, SHEL, NBL, RIG, CVX, BP, XOM,

Source: The Virginian-Pilot

More News in this Category