Gas prices spurt as Gulf's rigs, refineries brace for hurricane Isaac (+video)
For safety, about half the oil refineries in the Gulf region have shut down as hurricane Isaac approaches. Gas prices are up 4 cents a gallon over a week ago – and will go higher if down time is extensive.
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Without electricity, many pipelines will also be idle, because they need pumps to make fluids flow. “It will be a challenge without power,” says Felmy.Skip to next paragraph
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Mr. Cohan worries that the refinery shutdown will land even harder on the diesel market. “There is still strong export demand,” he says, which could drive prices even higher if the refineries are shut for an extended time. Last week, the price of diesel rose 6.3 cents a gallon, according to the Energy Information Administration. That was the highest level since mid-April.
However, the damage from Isaac might not be that bad – and Felmy says the industry learned a lot from hurricane Katrina. For example, in 2005 as the industry tried to reactivate refineries post-Katrina, it moved huge generators only to have them confiscated by the police to supply power to area hospitals. “We think we’ve worked through this with the emergency response people,” says Felmy.
The API economist says the industry has also toughened offshore oil rigs in the Gulf, which supply about 25 percent of the nation’s oil and 8 percent of the natural gas. After Katrina, some oil rigs suffered so much damage it took a year to get oil flowing again.
“They had never experienced or understood the huge [storm] surges,” says Felmy, “so the rigs were designed with lesser clearance. I think the platforms are in better shape.”
If the oil rigs are damaged, President Obama might have to open the Strategic Petroleum Reserve, which President Bush decided to tap after Katrina. Some traders had expected that Mr. Obama might mention the SPR in his Tuesday announcement that he had already declared a federal natural disaster for Louisiana. He did not.
Various organizations are weighing in about whether to open the SPR. AAA says it’s too early to make any announcements. “The Reserve is designed to be a tool to protect American motorists from emergency disruptions to supply and distribution, not as a response to high prices due to non-emergency supply and demand market fundamentals,” writes Avery Ash, AAA’s manager of regulatory affairs, in an analysis on Monday.
On Tuesday on CNBC, Sen. David Vitter (R) of Louisiana warned that the SPR should not be used for political purposes.
Felmy says the SPR should be used if individual members of the API have difficulty getting crude supplies.
Despite the higher gas prices, motorists should have no trouble getting gasoline for the Labor Day weekend. AAA says it expects some 33 million Americans to travel 50 miles or more this coming weekend. That would be a 2.9 percent increase from last year. when 32.1 million people hit the road.
Even though Isaac is expected to deliver a lot of rain to the US midsection over the Labor Day holiday, Ash says nationally it won’t affect people's travel plans. “Most people are traveling to visit family and catch flights,” he says. “There might be an effect on a regional basis, but not nationally.”