Ike pushes gasoline prices back toward $4

From Florida to Tennessee, and all the way up to Connecticut, people far from Hurricane Ike's destruction felt one of its tell-tale aftershocks: gasoline prices that surged overnight — to nearly $5 a gallon in some places.

Fears of supply shortages, and actual fuel-production disruptions, resulting from Ike's lashing of vital energy infrastructure led to pump price disparities of as much as $1 a gallon in some states, and even on some blocks.

Late Saturday the U.S. Minerals Management Service said there were two confirmed reports of drilling rigs adrift in the central Gulf of Mexico.

Compounding the jitters and higher costs for gasoline retailers was the fact that some big refineries along the Gulf Coast had been shut for nearly two weeks following Hurricane Gustav. Power outages caused by Ike threatened to keep millions of gallons of gasoline output idled for at least several days.

Emergency officials on Sunday said Texas refineries appeared to have escaped major flooding — a sign production could rebound quickly once power is restored — but that could take days and oil companies warned the effects of Ike could still lead to a temporary crunch.

"Chevron is concerned about severe gasoline supply disruptions in the wake of Hurricane Ike. It may not be possible for us — and other manufacturers — to maintain normal supplies in the coming days," the company said in a news release.

Some 15 Texas oil refineries, including the giant ExxonMobil refinery in Baytown, were shut as a precaution ahead of the storm, while another in Louisiana remained shut in the wake of Hurricane Gustav two weeks ago.

Together, the refineries make up just under a quarter of U.S. fuel production capacity.

Ike also shut down crude oil production in the Gulf of Mexico, a quarter of U.S. output, along with the bulk of shipping, port and pipeline operations on shore, hindering the transport of fuel to other parts of the country.

The U.S. Environmental Protection Agency has relaxed clean air fuel regulations in 11 states to ease any supply disruptions resulting from the storm.

Meanwhile, the price of regular gasoline soared as high as $4.99 a gallon in Knoxville, Tenn. on Saturday, up from $3.66 a day earlier.

In Florida, the attorney general's office reported prices as high as $5.50 a gallon in Tallahassee and said it had received 186 gouging complaints.

Gov. Charles Crist said on Friday that $5 a gallon "can only be described as unconscionable" and added: "Raising rates to exorbitant levels like this only causes unnecessary panic and fear. This type of behavior will not be tolerated."

In Connecticut, AAA said average prices jumped 10 cents overnight and Attorney General Richard Blumenthal said his office had received complaints of stations charging more than they advertised, raising prices more than twice in a single day and other problems.

"A lot of it is simply incredible," Blumenthal said, "and a lot of the price increases make no sense economically in terms of supply and demand."

Prices in California on Saturday ranged from $3.49 to $4.39 per gallon. In the eastern suburbs of Cleveland, gasoline jumped from $3.55 early in the week to $3.79. Regular gasoline at Chicago-area stations averaged $4.12 a gallon.

The price jumps came after the wholesale price of gasoline soared to $4.85 a gallon Friday in anticipation of Ike's arrival.

Many stations have contracts to buy gas from suppliers based on prices set by those markets, said Tom Kloza, chief oil analyst with the Oil Price Information Service.

"They aren't gouging; they are simply passing along the wholesale cost," he said. However, a small percentage of stations owned by major oil companies are somewhat insulated from these forces, enabling them to keep prices lower.

In Knoxville, Tenn., account executive Sharon Cawood said "one of our local gasoline chains called a local TV station Thursday, sometime during the day and said, 'We're running out of gas. We're going up 80 cents a gallon... It caused a major scare.

"By the time it hit 6 o'clock news and 11 o'clock news it was like snow was falling and milk and bread were flying off the shelves."

Larry Daugherty, a talk radio host Knoxville's WQBB, said a steady stream of calls began Friday morning from people perplexed about price discrepancies.

People reported gas was selling for as low as $3.49 a gallon in some spots, and $5 at another.

"People are outraged," Daugherty said. "Everyone is having a hard time understanding all of this."

Such market fundamentals could last for another few weeks, depending on how quickly Texas and Louisiana refineries shuttered by Ike can come back on line. "It's a mess," Kloza said.

Ike shut down 14 Texas refineries with a total capacity of 3.8 million barrels of crude a day, or about 20% of the country's total output.

The average cost for a gallon of gas nationwide could head back toward all-time highs of $4 per gallon, reached over the summer when oil prices climbed toward $150 a barrel.

Gasoline prices jumped more than 11 cents since Friday, to an average $3.795 a gallon — biggest two-day increase since hurricanes Katrina and Rita devastated portions of the Gulf Coast in 2005, according to the AAA's daily survey of more than 100,000 service stations.

"For the prices to be the rate they are now, it's hard for the middle-class working person to survive it," said Glenda Lang, who spent close to $43 to receive the 10-gallon limit at an S-Mart in Columbia, S.C., on Saturday.

Kloza said prices are more likely to be higher throughout the Southeast because they get fuel from Gulf refineries. He expects nationwide prices to begin falling later in the fall, perhaps as low as $3 a gallon by year's end, based on current oil prices of about $100 per barrel.

President Bush said, "The Department of Energy and state authorities will be monitoring a gasoline crisis so consumers are not being gouged."

Ike's storm surge was less severe than predicted, potentially sparing refineries from additional flooding. However, the lack of electricity in and around Houston and western Louisiana — major hubs for oil refiners — poses a significant challenge for the energy industry.

CenterPoint Energy, the main utility in Houston, reported 1.3 million outages Saturday.

The Sabine Pipe Line, a crucial natural gas conduit, has also been shut down. The CME Group, parent of the New York Mercantile Exchange, declared a force Majeure for all remaining delivery obligations for September natural gas contracts. That temporarily frees the parties from liability for contracts that can't be executed because of the storm.