Katrina, Rita will cause fuel prices to climb

Oil Price Information Service (OPIS) analysts forecast the national average price for both diesel and gasoline will soon rise above the $3 level—just as it did in the aftermath of Hurricane Katrina.

Wholesale diesel prices along the Gulf Coast are above $3, with $2.40-level prices in the Midwest and West Coast. All of this translates to $3 and beyond retail, OPIS said.

“(Media and energy analysts) talked about a 'bullet being dodged' when Hurricane Rita didn’t hit Houston with Category 4–5 implications,” said Tom Kloza, OPIS publisher. “The reality is that we took several bullets—not fatal, but we are bleeding profusely in terms of supply.”

According to the Energy Information Administration (EIA), Rita left eight refineries completely shut down, with another eight restarting or attempting to restart. An additional four refineries remain shut down after Katrina.

This amounts to a daily shortfall of one million barrels of gasoline and 800,000 barrels of distillate, which could be refined as either diesel or heating oil.

As of the week ending September 25, the national average gasoline price rose 1.7 cents to $2.803 and diesel was up 6.6 cents to $2.798, EIA said. But these increases are only the tip of the iceberg, OPIS said.

“I think we’ll see around $3 for both gasoline and diesel, and there will be pockets where prices will be significantly above $3,” said Denton Cinquegrana, OPIS markets editor. “That’ll last until we get the refineries back and running, which will take a while. It’ll be tough through October and there will be the potential (that $3-level prices) will last longer, depending on the state of the refineries by then.

“Some refineries had pretty major damage,” Cinquegrana said. “One company said their refinery will be down for two to four weeks, but that might be optimistic considering what needs to be done: cleaning the flooding, fixing damaged components, and getting the refinery restarted. Some refiners have facilities with no power or running water, and that will keep them from assessing damage and getting back to work on getting back up and running.”

TAGS: Components
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