Oil dips briefly below $100, but wholesale gas spikes

ByABC News
September 14, 2008, 5:54 PM

NEW YORK -- 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.