Ripples from Hurricane Katrina could deliver $3-a-gallon gasoline by Labor Day weekend to California and across the nation as most of the Gulf Coast petroleum industry remained closed Tuesday, pushing wholesale energy prices to new highs.
Fearful of shortages, traders in New York furiously bid up prices of crude oil, gasoline, natural gas and heating oil as grim images poured in of severe flooding and other extensive damage to the oil-rich area.
In the Gulf Coast region, which accounts for about one-quarter of the nation's production of oil and natural gas, 95% of the oil output and 88% of the natural-gas production remained shut down, according to the U.S. Minerals Management Service, an arm of the Interior Department. Several gasoline refineries and pipelines were still out of commission.
The stunning surge in futures prices will soon spread across the nation, analysts said. That includes California, where prices at gasoline pumps -- already averaging a record high of nearly $2.81 a gallon for self-serve regular -- should keep rising in the wake of Katrina's devastation, they said.
"The storm is going to cause gasoline prices in California to go up," said David Hackett, president of Stillwater Associates, an oil consulting firm in Irvine.
California doesn't import much gasoline from the East because of strict air-quality standards. Even so, the state's prices are heavily influenced by swings in prices for oil and gasoline futures contracts traded on commodities markets, he said.
And there was speculation that energy companies and traders might export California fuel to the Gulf states to cash in on prices that for once were higher than those in the Golden State.
Crude oil accounts for about half the cost of gasoline, and the U.S. benchmark grade of light crude for October delivery on the New York Mercantile Exchange surged as high as $70.90 a barrel before closing at $69.81, up $2.61.
It was the highest closing price since oil futures began trading on the Nymex in 1983, breaking the previous record of $67.49 a barrel reached Thursday. If adjusted for inflation, prices are still below the $90-a-barrel level reached in 1980-81.
Gasoline for September delivery on the Nymex skyrocketed 41.39 cents, or 20%, to $2.475 a gallon. The rally was so frenzied that, after prices had jumped 25 cents a gallon, the exchange halted trading for five minutes to let the market cool. But after trading resumed, prices shot even higher.
