As Hurricane Rita closes in on the nation's refining center, energy experts warned Wednesday that a direct hit to the Houston area could disable more than a quarter of the country's fuel-making capacity and send pump prices to new highs.
As the hurricane's likely path became clearer, oil companies stepped up the evacuation of production platforms in the Gulf of Mexico and slowed production at some refineries as a first step toward shutting them completely.
Oil and gasoline wholesale prices rose in New York on Wednesday as traders tried to anticipate the storm's path and potential effects.
"It really is a touch-and-go situation," said Thomas Bentz, senior energy analyst at BNP Paribas Commodity Futures. "It's really going to depend on where the hurricane makes landfall. It's going to be the difference of paying $3.70 a gallon or staying down under $3."
The U.S. national average for self-serve regular grade was $2.764 a gallon Wednesday, AAA reported. Though down 2.4 cents for the day, the price remained more than 90 cents above year-ago levels.
Rita grew stronger over the course of the day, becoming a Category 5 hurricane with powerful winds that surpassed the force of Hurricane Katrina when it slammed into the Gulf Coast on Aug. 29.
One of Rita's potential routes would take it through Houston and other gulf cities such as Corpus Christi to the southwest and the Beaumont-Port Arthur region to the east. The possibility reverberated throughout the energy industry.
The Houston-Galveston area alone is home to nine refineries and more than 13% of the nation's oil processing capacity. Put together with the plants in Corpus Christi, Port Arthur and Lake Charles in southwestern Louisiana, the region accounts for 27.5% of U.S. refining capacity, according to the American Petroleum Institute.
Rigs and platforms in the Gulf of Mexico are responsible for about 28% of U.S. crude oil production and 19% of its natural gas, according to the federal Minerals Management Service. Many large oil companies are based in the Houston area, which also is home to a huge contingent of traders in oil, natural gas and gasoline and other petroleum products.
Pipelines that originate in the Houston region carry vast amounts of fuel to the Midwest and East Coast, and those deliveries could be affected by Rita.
"That area, and the Houston shipping channel, is really the heart and soul of the U.S. oil industry," said Phil Flynn, an energy expert at Alaron Trading Corp.
