[lbo-talk] $3 gas by next week?

[Doug Henwood]

Wholesale gasoline tops $3 a gallon on Gulf Coast
By Bernie Woodall


NEW YORK (Reuters) - Wholesale gasoline prices on the Gulf Coast 
broke $3 a gallon on Tuesday -- far higher than prices at most U.S. 
pumps -- as major refineries remained shut after Hurricane Katrina, 
trading sources said.

This could spell a huge spike in retail prices for drivers throughout 
the United States in the coming days and in particular those in the 
Southeast, where prices are typically the lowest in the country.

The spike in wholesale prices from below $2 last Friday came after 
Hurricane Katrina plowed through the Gulf of Mexico and made landfall 
near New Orleans, forcing shut at least eight refineries in Louisiana 
and Mississippi and slowing production from two others.

The shut refineries and plants with reduced production account for 
about 15 percent of U.S. refinery production.

On Tuesday, a gallon of gasoline traded in the Houston-based Gulf 
Coast physical marketing hub cost about $3.15 a gallon -- sharply 
higher than the national average retail price of about $2.60 a gallon.

Traders were reluctant to guess how high the wholesale spike will 
make prices at the pump but some say it's safe to bet that the price 
of a gallon of regular self-service gasoline in the United States 
will top $3 per gallon by next week.
"Retail prices are going to vary among regions but for all practical 
purposes $3 is a floor," said private oil analyst Jim Ritterbusch.

The spike could spread across other regions of the United States due 
to the shutdown of two fuel pipelines from the Gulf Coast to the 
Northeast, including the massive Colonial Pipeline.

"This tightness of supply in the Gulf Coast is going to spread," said 
Ritterbusch, of Galena, Illinois. He said the shutdown of a major 
fuel pipeline from the Gulf Coast to the Northeast could push prices 
up in other regions.

"This thing has tentacles that are going to stretch all over the 
place," Ritterbusch said.

The Colonial Pipeline carries about 1.3 million barrels per day of 
gasoline and distillates from the refining hub of Houston along the 
Gulf Coast through Atlanta, Greensboro, North Carolina, the 
Washington, D.C. area and terminates at the New York Harbor.

In addition to the refinery shutdowns, about 92 percent of Gulf of 
Mexico crude oil production was shut on Monday as a result of 
Katrina, the U.S. Minerals Management Service said, triggering 
worries that refiners may not have adequate feedstock when they 
restart.

Citgo Petroleum, a subsidiary of Venezuela's PDVSA, said on Monday it 
formally requested oil from the U.S. emergency stockpile to keep its 
refinery in Lake Charles, Louisiana, operating.

A switch to easier-to-produce autumn grade gasoline later this week 
is expected to bring prices lower, some dealers said.