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Oil prices drop, but power outages spark hikes for gas

Crude settles below $100 a barrel, while some U.S. areas see big jumps at the pump.

September 16, 2008|Elizabeth Douglass and Ronald D. White | Times Staff Writers

The price of oil fell sharply Monday to close below $100 -- a first since early March -- reflecting the gloom in financial markets and a sense of relief that key energy facilities weren't heavily damaged by Hurricane Ike.

The twin forces pushed light, sweet crude for October delivery as low as $94.13 a barrel Monday before ending the session at $95.71, down $5.47. Oil prices fell further in after-hours electronic trading to $93.71 a barrel; several analysts predicted more drops to come.

Retail gasoline prices kept moving in the other direction, though, as widespread power outages prevented Gulf Coast refineries from producing the gasoline and diesel that normally travels by pipeline to markets as far away as Minnesota, Indiana and New Jersey.

The Energy Department's weekly survey found a 19-cent jump in the nationwide average cost for self-serve regular to $3.835 a gallon on Monday. The American Automobile Assn., which publishes daily changes in gas prices, said the U.S. average rose 16.7 cents since Friday to $3.842 a gallon.

The disconnect between oil prices and gasoline costs irritated some motorists -- especially those who watched fuel prices jump 30 to 60 cents in places untouched by Ike.

In Alabama, Len L. Hardin Sr., a 54-year-old retired and disabled aircraft mechanic, said he could barely discern Ike's passage north from normal weather patterns outside his home in Graysville, 12 miles northwest of Birmingham. That is, not until he watched a local gas station change its price for a gallon of regular gas from $3.49 last week to $4.65 on Monday. It was no fluke. Another outlet was charging $5.05 a gallon.

"It's gouging," Hardin said. "It's not the station's fault. They said the suppliers told them what price to put up. I'm just hoping these people will be prosecuted, but that remains to be seen.

"There's not much I can do about it, so I'm just going to sit right here," he said. "Unless it's a doctor's appointment, I'm not going anywhere."

Florida Atty. Gen. Bill McCollum said Monday that he would issue subpoenas to fuel retailers Flying J, Dodge's Gas Stores, Valero Energy and Pilot Travel Centers seeking documentation of the prices they paid for gasoline. McCollum said his office received more than 350 complaints about gas prices over a four-day period.

"Passing along a justifiable increase in cost to consumers is legal, but we will not tolerate gouging for greed," he said.

Experts attributed the far-flung price increases to disruption in fuel production in the nation's largest oil-refining centers, first by Hurricane Gustav and then by Hurricane Ike. In both cases, facilities sustained little or no damage, but sweeping power outages have kept refineries off-line and hampered the restart of energy ports, pipelines and fuel terminals.

As of Monday morning, 14 refineries remained closed, representing 3.6 million barrels a day, or about 20% of the nation's oil-processing capacity. Key pipelines are restarting operations but have little fuel to deliver to the Northeast, Southeast and Midwest.

With fuel supplies temporarily squeezed, areas dependent on Gulf Coast pipeline deliveries felt the ripple effect. Retail gas prices soared in Michigan, Tennessee and elsewhere. South Carolina's statewide average pump price hit a record $4.121 a gallon Monday, AAA said.

The cost of gas even ticked up slightly in California, an isolated fuel market with no direct ties to Texas refineries. The statewide average increased to $3.823 a gallon Monday, up less than a penny from the day before, AAA said.

California prices rose in part because imports normally bound for the West Coast were diverted to more needy markets on the Gulf Coast and in the East, analysts said. In addition, California refiners probably are sending more gasoline and diesel to Arizona to make up for the lack of fuel in the pipelines that connect Arizona to Texas refineries.

Still, there are signs that the increases may be short-lived. Gasoline prices are easing in the so-called cash markets, where fuel deals are done for immediate delivery. Last week, such spot gasoline purchases in the Gulf Coast market were $2.50 a gallon above the price of gasoline set for delivery in October, said Andrew Lipow, a Houston-based consultant. On Monday, that difference had shrunk to $1.25 a gallon, with more declines expected.

"People want gasoline now, and to buy it now is very expensive," Lipow said. "So we're going to see prices move up nationally a little bit and then start falling down."

That would be good news for people such as 72-year-old Derrel H. Green of Murrieta, Calif. After watching pump prices fall for 12 weeks, he was angered when he saw gas stations posting higher prices Monday.

"It just makes no sense to me that there could be a real shortage anywhere," said Green, a retired bus driver. "If there is any excuse under the sun that the people running these oil markets can grab, they use it as an excuse to raise prices. . . . It's just kind of tragic what they are putting people through."


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