Ike spikes gas prices as the hurricane threatens Texas refineries - KSWO 7News | Breaking News, Weather and Sports

Ike spikes gas prices as the hurricane threatens Texas refineries

New York_Gasoline prices jumped to unprecedented levels in the wholesale markets Thursday as Hurricane Ike tore across the Gulf of Mexico, threatening to strike Texas and its refineries.

The wholesale price of gasoline ranged from $4 to nearly $5 a gallon at the U.S. Gulf Coast on Thursday, said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service in Wall, N.J. That was up significantly from about $3 to $3.30 a gallon on Wednesday, Kloza said.

"We're looking at the highest wholesale prices ever for a huge swath of the country," he said. "People understand that regardless what happens with Ike, it's going to shut down the biggest refining cluster for a period of five, six, seven days."

The wholesale price of gasoline is what refineries charge retailers. Retailers then mark up those prices for the customer so they can make a profit _ so if these wholesale prices hold, it could mean that pump prices for U.S. drivers easily break through the July 17 record of $4.114 a gallon.

The average U.S. retail price for gasoline was at $3.671 on Thursday, according to the Oil Price Information Service, auto club AAA and Wright Express.

The market's renewed storm worries arrive a day after the U.S. Energy Department reported a larger-than-expected drop in crude and gasoline inventories, and OPEC decided to cut excess production by about half a million barrels a day.

October gasoline futures on the New York Mercantile Exchange rose 9.95 cents to $2.7611 a gallon in morning trading.

But despite the growing worries about Ike, funds continued to liquidate their investments in crude, anticipating a slower global economy and a stronger U.S. dollar.

Light, sweet crude for October delivery fell 89 cents to $101.69 a barrel on the Nymex, after dropping as low as $100.10 a barrel. The contract fell 68 cents on Wednesday to settle at $102.58 _ the lowest close since April 1.

"It's a strange, strange world here," Kloza said. "You might see an extraordinary thing _ you may see crude oil less than $100 and retail gasoline more than $4 a gallon."

Ike, arriving on the heels of last week's Hurricane Gustav, was expected to blow ashore early Saturday somewhere between Corpus Christi and Houston, with some forecasts saying it could become a Category 4 storm.

On Thursday, Ike was a Category 2 storm with winds near 100 mph (161 kph). It was churning about 645 miles (1,038 kilometers) east of Brownsville, Texas, and moving west-northwest at near 9 mph (14.5 kph), after tearing through Cuba and killing at least 80 people in the Caribbean.

Texas is home to 26 refineries that account for one-fourth of U.S. refining capacity, and most are clustered along the Gulf Coast in such places as Houston, Port Arthur and Corpus Christi. Exxon Mobil Corp.'s plant in Baytown, outside Houston, is the nation's largest refinery.

Refineries are built to withstand high winds, but flooding can disrupt operations and _ as happened in Louisiana after Gustav _ power outages can shut down equipment for days or weeks.

The big question, however, is whether a possible disruption in gasoline distribution _ not to mention the slow economy _ would crimp demand and drive gasoline prices back down again.

"This could end up looking just like Katrina, whereby prices spiked substantially and came down just as hard," said Linda Rafield, senior oil analyst for Platts, the energy research arm of McGraw-Hill Cos.

When Hurricanes Katrina and Rita scoured the Gulf Coast back in 2005, she said, "the U.S. economy was in the mature phase of a business expansion." Now, the U.S. economy is slowing, so demand could suffer even more.

The Energy Department recently reported that in June, total oil product demand was down 1.17 million barrels a day, or 5.6 percent, compared to the same time last year. That demand slowdown in the United States, and similar patterns in Europe and other developed nations, has driven crude prices down about 30 percent from their record above $147 a barrel on July 11.

The Organization of Petroleum Exporting Countries responded to falling crude prices and waning demand Wednesday by reducing output by 520,000 barrels a day.

"OPEC was trying to slow this steep decline," said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne. "But we're in a bearish trend right now and I still expect the price to fall another $10."

Trader and analyst Stephen Schork suggested prices could fall even lower, to $75, "which is exactly where oil was last September."

Evidence of falling U.S. crude inventories also failed to stop crude's decline. The Energy Department's Energy Information Administration said Wednesday that crude inventories fell by 5.9 million barrels last week compared to the previous week, and that gasoline inventories fell by 6.5 million barrels. Inventories of distillates _ which include heating oil and diesel fuel _ fell by a lower-than-anticipated 1.2 million barrels.

In other Nymex trading, heating oil futures rose 1.99 cents to $2.9223 a gallon.

Natural gas for October delivery rose 0.3 cent to $7.390 per 1,000 cubic feet, after the EIA said Thursday that natural gas in U.S. storage rose last week.

In London, October Brent crude fell 45 cents to $98.52 a barrel on the ICE Futures exchange.


Associated Press Writers Alex Kennedy in Singapore and George Jahn in Vienna contributed to this report.

Copyright 2008 by the Associated Press. All rights reserved

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