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Gasoline prices seen topping $3 a gallon

Hurricane Rita will push U.S. gasoline prices over $3 a gallon again, but the rise is likely to be limited as the higher pump price caps consumer demand, oil analysts said Wednesday.
/ Source: Reuters

Hurricane Rita will push U.S. gasoline prices over $3 a gallon again, but the rise is likely to be limited as the higher pump price caps consumer demand, oil analysts said Wednesday.

Rita’s impact on oil refineries and oil production could be a “national disaster,” according to the head of the nation’s biggest maker of gasoline, Valero Energy Corp.

“If it hits the refineries, and we’re short refining capacity, you’re going to see gasoline prices well over $3 a gallon at the pump,” said Valero Chairman and Chief Executive Bill Greehey.

The Gulf Coast, which accounts for about a third of domestic crude oil production, braced for the second major hurricane in less than a month.

Rita was upgraded on Wednesday to a powerful Category 4 storm as it headed across the Gulf of Mexico on a course that could take it to Texas, home to a fourth of U.S. oil refinery production.

Federal officials said 18 Texas oil refineries stood in Rita’s projected path, which account for 23 percent of U.S. refining capacity.

The storm comes just three weeks after Hurricane Katrina damaged numerous rigs, platforms and refineries near the Louisiana and Mississippi coasts.

But analysts did not expect Rita to have the same impact on U.S. retail gasoline prices as Katrina.

A week after Katrina, the national retail price for regular unleaded gasoline jumped 46 cents to hit a record high of $3.07 a gallon, nipping at the inflation-adjusted high of $3.12 reached in early 1981.

Prices have since fallen to $2.79 per gallon.

Jim Ritterbusch, president of Ritterbusch and Associates, said gasoline prices could bounce back above $3 after Rita, but the prices will not be sustainable.

“After Katrina, we’re better equipped to analyze the potential for Rita and I don’t think the upside response will be as exaggerated,” he said.

Dave Costello of the U.S. Energy Information Administration said prices in time will fall and stay well below $3 as many oil facilities damaged by Katrina return to normal operations.

“We think gasoline prices ought to average $2.50 a gallon or less by November or December,” he said.

Even under the worst-case scenario, three analysts said, they did not see gasoline prices above $4 a gallon.

Consumer demand wanes
Bill O’Grady, an analyst with A.G. Edwards, said gasoline prices may not reach unprecedented levels as consumer demand falters.

“We could see hoards of people on bicycles,” he said. “We just don’t know, because we’ve never been there.”

Current gasoline prices have already stunted demand. The EIA said gasoline demand in the past month fell 2.1 percent below the same period last year to 9 million barrels per day.

Analysts also said oil companies would do everything in their power to keep gasoline prices affordable to mute growing criticism from Washington.

Democrats have asked Congress to pass legislation to probe the industry on profiteering, and limit companies from boosting gas prices during a major supply disruption.

“It will empower the federal government to end price gouging by oil companies,” said Rep. Bob Etheridge, a North Carolina Democrat.