IE 11 is not supported. For an optimal experience visit our site on another browser.

Import surge expected to ease gas shortages

As motorists and shippers continued to grapple with surging fuel prices and spot shortages Friday, a flood of imported oil and refined fuels is expected to prevent wider outages in the next few weeks.
/ Source:

As motorists and shippers continued to grapple with surging fuel prices and spot shortages, a flood of imported crude oil and refined fuels is expected to prevent wider outages in the next few weeks. But Hurricane Katrina’s long-term impact on American gasoline prices and supplies is still not fully known.

Four days after one of the worst storms in U.S. history shut down a chunk of the nation’s refining capacity, gasoline shortages were reported in a number of states, including Alabama, Florida, Georgia, Illinois, Indiana, Massachusetts, North Carolina, Pennsylvania, Virginia, West Virginia and Wisconsin.

"Out of our 34 stores, we've had two or three a day that have been out of gasoline for part of the day," said Jay Ricker, president of Ricker Oil Co. in Anderson, Ind.

Where supplies were adequate, pump prices continued to surge Friday -- up 25 percent in a week from levels that had already broken records. With retail prices well over $3 a gallon in many parts of the country, the average price for a gallon of regular hit $2.867 Friday, up 16 cents in just the past 24 hours, according to AAA. That compares with average prices of $2.285 a week ago and $1.852 this time last year.

For the most part, gas stations with long-term contracts were adequately supplied. Independent retailers who buy gas on the so-called “spot” market were having a harder time maintaining supplies.

“If you’re an independent right now, your chances are of running out are pretty good,” said Phil Flynn at Alaron Trading.

Bad timing
Katrina dealt a major blow to U.S. gasoline supplies at the worst time of year, with inventories already stretched during peak summer demand. The storm knocked out some 75 million gallons per day of refining capacity – or about 11 percent of the U.S. total, according to Jacques Rousseau, an analyst at Friedman Billings and Ramsey in Houston. 

Eight U.S. oil refineries remained shut in Louisiana and Mississippi and several others were operating at reduced rates. With power restored Friday to some areas, refiners were beginning the delicate task of restarting facilities required to a produce highly volatile product under extremes of heat and pressure. Half of the idled refineries should be back in production within two weeks, but repairs to others may take more than a month, according to White House officials.

And repairing damage and restoring power aren’t the only hurdles the effected refiners face.

“Some of the companies are having difficulty finding their people because their homes have been destroyed and they’ve moved out of the immediate area,” said Energy Secretary Bodman at a press conference Friday.

To make matters worse, Katrina shut down Colonial Pipeline’s 5,500-mile fuel delivery network, stretching from Houston to New York harbor, which normally moves some 100-million gallons a day of gasoline, diesel, home heating oil and jet fuel throughout the south and eastern United States. The company said Friday it was operating at 66 percent of capacity and expected to continue to boost capacity through the weekend.

But spot outages and price spikes are expected to be short-lived; the sharp drop in U.S. oil and gasoline production has produced a surge in imports. Already, some 20 tankers carrying a combined 10 million barrels of petroleum products were steaming toward U.S. ports.

'Armada of imports'
On Friday, the International Energy Agency -- which oversees strategic petroleum reserves held in the U.S., Europe and Japan -- announced that it would release some 60 million barrels of crude oil and refined products to U.S. markets over the next month. About half the crude will come from the U.S. Strategic Petroleum Reserve. Analysts said those supplies should begin arriving on U.S. shores in a matter of weeks.

“This armada of imports from Europe is going to start hitting, and we’re going to see supplies rapidly improve in the face of a decline in usual seasonal demand,” said A.G. Edwards analyst Bill O’Grady.

The recent spike in pump prices should also help cut demand, further easing the crunch on supplies, said O’Grady.

“I think you’re going to have people forego trips, and behavior will change,” he said.

To speed the shipment of European and Japanese gasoline reserves to U.S. markets, the Environmental Protection Agency waived regulations governing the use of so-called reformulated gasoline blends in many part of the country. The law requires that gasoline sold in dozens of markets around the country contain specific additives to make fuel burn cleaner and reduce air pollution.

The regulations mean than retailers in come parts of the country can only sell gasoline made by specific refiners. By lifting the rules, gasoline made by any refiner can be sold in any part of the country.

The Bush administration also temporarily waived shipping regulations that require vessels transporting passengers and cargo between U.S. ports to be American-owned and staffed with American crews.

But it remains to be seen how long it will take for energy markets to stabilize in the U.S.  Even before Katrina hit, home heating oil and natural gas prices had begun to rise to levels nearly double a year ago. Refiners typically begin building inventories of heating oil at this time of year, so a prolonged outage at the refineries hit by the storm could worsen already tight supplies.

Already, heating oil dealers are looking for alternative suppliers. Marty Baruso, a New York city supplier of biodiesel fuel made from soybean oil, says his orders have jumped more than five-fold and he can’t keep up with demand.

“The next 25 truckloads are sold already,” he said.