Crude oil on the futures market briefly sank below the $100 a barrel Friday for the first time since April 2. — suggesting investors believe a worsening global economy will continue to drive down demand for some time in the United States and elsewhere.
Gasoline prices, however, jumped at the wholesale level as Hurricane Ike swept toward Houston, home to about one-fifth of U.S. refining capacity, and the site of a major fuel and grain distribution channel.
Wholesale gasoline prices on the Gulf Coast moved further into uncharted territory Friday, as refineries anticipated that Ike would lead to at least a significant pause in their operations, and at worst damage to their facilities. On Thursday, the Gulf Coast wholesale price of gasoline last traded around $4.75 a gallon, according to OPIS, up substantially from about $3.25 Wednesday and less than $3 Tuesday.
Wholesale prices were much lower in other regions such as Chicago, New York and Los Angeles, but even those areas saw prices rise.
"Hopefully it's a temporary phenomenon, but we won't know until next week," said Ben Brockwell, director of data pricing and information services at the Oil Price Information Service.
Wholesale prices are determined by major players in the supply chain including refining and trading companies, which constantly buy and sell barrels. These prices end up deciding what refineries charge distributors, before they get marked up further at the retail level for the consumer.
The fact that U.S. fuel demand is so weak right now might mean the recent surge in the wholesale price of gasoline might not be passed along to consumers unless Ike's impact is severe and long-lasting.
"Major oil companies are sensitive to raising prices in this environment," Brockwell said.
Ike is forecast to land early Saturday as a Category 3 hurricane near Galveston, a barrier island about 50 miles southeast of Houston. The Houston region is home to about one-fifth of U.S. refining capacity, and the site of a major fuel and grain distribution channel.
On the New York Mercantile Exchange, light, sweet crude for October delivery fell 6 cents to settle at $100.18 a barrel in afternoon trading, after briefly sinking to $99.99.
October gasoline futures climbed 0.11 cents to $2.76 a gallon on Nymex.
The average U.S. retail price for gasoline edged up less than a penny to $3.675 Friday from Thursday, according to auto club AAA, OPIS and Wright Express.
"All week long, it's been a gasoline story more than anything. If you just looked at the crude market independently, you wouldn't know that we had a couple of hurricanes," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, referring to Ike and last week's Gustav.
"This dichotomy could persist for a few more days next week," he said. But "once the storm factor subsides, we'll see a much higher correlation between gasoline and crude oil."
ExxonMobil, Valero Energy, ConocoPhillips and Marathon Oil have begun halting operations as the hurricane headed straight for the nation's biggest complex of refineries and petrochemical plants. U.S. wholesale gasoline prices spiked 30% Thursday.
As of Friday, nearly 98% of crude production and more than 94% of natural gas production in the Gulf were shuttered, according to the Department of the Interior's Minerals Management Service.
Ike is huge, taking up nearly 40% of the Gulf of Mexico. The National Hurricane Center said tropical storm-force winds of at least 39 mph extended across more than 510 miles.
Ike and last week's Hurricane Gustav have helped to stanch a sharp downturn in oil prices. Concerns over slowing economic growth on a global scale and a strengthening U.S. dollar have led funds to liquidate their commodities holdings, pushing crude prices down about 30% from their record $147.27 set on July 11.
U.S. fuel demand in June was down 5.6% from the same period a year ago, according to a recent report from the Energy Department, so many market watchers are expecting oil prices to resume their tumble.
"With demand being down as much as it is, the market, some argue, is a bit oversupplied," said Stephen Maloney, a senior consultant in energy risk management at Towers Perrin. "When you ask, how does Ike affect things? Its impacts are going to be in the context of lower demand for products than a year ago."
Associated Press writers Alex Kennedy in Singapore and Louise Watt in London contributed to this report.