Pump price zooms amid scattered shortages
Hurricane Katrina's impact on prices at the gasoline pump was expected to be felt immediately far from the Gulf Coast.
Two major pipelines delivering fuel from the region–the Plantation pipeline, which terminates near Washington, D.C., and the Colonial pipeline, which ends in New York Harbor–were shut down because of electricity outages. Although pipeline operators reported no major structural damage to their underground systems, they could not predict when oil flows would be restored. Motorists were reporting on the website of an all-news radio station in Washington, D.C., that they had seen pump prices climb 30 cents to 40 cents overnight.
Many oil refineries and fuel wholesalers were rationing deliveries to gas stations, and supplies ran out at some wholesale terminals in parts of the Midwest, mid-Atlantic, and Southeast. It was unclear whether consumers would be touched by rationing–a development that truly would reprise the oil shocks of the 1970s.
"I've heard some stories of isolated issues accessing supply," says Ted Harper, vice president and energy analyst at Frost National Bank in Houston. "I've not heard anything that would lead me to believe it's a widespread issue yet, but certainly the risk becomes greater the longer we go without restart on some of the refineries and given the fact that it may take several days or weeks for the floodwaters to recede."
Clearly, the markets were concerned. Although crude oil prices rose just 3.8 percent on the futures market Tuesday to close at $69.81 a barrel, gasoline futures leapt 20 percent to an all-time record (not adjusted for inflation) of $2.48 per gallon. Heating oil also reached an all-time high, up 8.7 percent to $2.08 per gallon. Those prices show that the markets are not as worried about the supply of crude oil but about the system's ability to process it into usable fuel, since the nation's refinery system was operating well in excess of 95 percent capacity before the crippling storm.
"Products are leading the market because refining is the problem," says Larry Goldstein, president of the Petroleum Industry Research Foundation.
Natural gas prices also were soaring, with the spot price up 25 percent from Friday to $12.36 per million Btu. "Consumers are going to get an awfully ugly surprise when they start to get their heating bills" this winter, says Harper of Frost National Bank. Even if production and delivery problems are dealt with rapidly, Harper anticipates home heating costs will be up 20 percent over last year. And consumers who rely on electric heat will not be immune if their power company uses natural gas to generate electricity. Florida utility companies, which rely heavily on Gulf of Mexico natural gas, have warned the state's customers to conserve electricity and have said they might resort to targeted brownouts, affecting homes and businesses that have agreed to participate in voluntary energy-management programs.