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Oil falls; gas costs see post-storm surge

Crude nears the $90 level. For motorists in some U.S. areas, pump prices hit $5 a gallon.

September 17, 2008|Ronald D. White | Times Staff Writer

Oil prices took another swan dive Tuesday, falling more than $4 a barrel to flirt with the $90 threshold.

But in the wake of Hurricane Ike, Gulf Coast fuel supply operations remained a mess for motorists from Texas to the Northeast, with prices spotted well above $5 for a gallon of regular gasoline.

Motorists should brace for a return to $4 a gallon on average nationwide through mid-October, fuel experts said. The increase also will include California, which faces competition for its gasoline supplies.

"These are exceptional times. Crude oil is down, but those numbers are an indication of where gasoline prices are headed in the future, not the present," said Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey.

Even before Hurricanes Gustav and Ike, refineries had been operating at lowered production levels for months because of declining consumer demand, Kloza said. That left little room for error.

Many petroleum facilities then closed in anticipation of Gustav's arrival and had not reopened when Ike hit the gulf. Then Ike's bigger footprint prompted more shutdowns of offshore production platforms and land-based refineries, terminals and pipelines.

On Tuesday, U.S. benchmark crude oil for October delivery traded as low as $90.51 before closing at $91.15 a barrel, down $4.56. Oil prices have plunged nearly $10 a barrel this week as investors have sought safety in cash, believing that Wall Street turmoil signaled more problems for the economy that would slow energy demand.

Kloza said that motorists who live in states supplied by Texas and Louisiana refineries would experience spot shortages of gasoline and extreme price differences as energy companies struggle to restart refineries and pipelines.

On average, U.S. drivers were paying $3.854 for a gallon of regular gasoline Tuesday, up 18 cents from Friday, according to AAA's daily survey of gasoline sellers.

On GasBuddy.com, the cost of a gallon of regular topped out at $5.21 at a station in Winchester, Tenn.

Some motorists were staggered by the sudden price jumps.

"I understand that there are shortages, but this is very suspicious," said Stephen Stone, 46, an engineer for the Metropolitan Transportation Authority who lives in Norwalk and drives a Xebra SD all-electric sedan that rolls on three wheels.

Stone has never felt better about his $12,000 purchase of the Xebra last year, even though it will go only as far as 40 miles on a charge under the best circumstances -- flat roads and no traffic.

"It's like driving when there weren't many gas stations. You have to plan trips very carefully," Stone said.

The gasoline-dependent could see sharp price declines by December as the U.S. economy continues to struggle and as countries in Europe and Asia slow down.

"Mother Nature has delivered a blow to U.S. supplies, but you can make a strong case for gasoline dropping below $3 a gallon in some markets by the end of the year," Kloza said.

Oil has dropped nearly 38% from its record high of $147.27 in July, and several analysts believe the downward trend in oil prices will continue.

The cost of crude is falling "even though we have two hurricanes, a Russian invasion and an OPEC production cut," said Peter Beutel, president of Connecticut-based risk management firm Cameron Hanover Inc. "You can deduce from that that prices were too high."

Beutel said oil prices per gallon "belong between $69 and $79, because that's where oil was when the move started."

Added Phil Flynn, oil analyst with Alaron Trading, "We opened up the floodgates to the downside . . . and we're getting very close to giving up the gains for the year." His prediction: "Now that we're below $100, I think we're going to the $80s, and I think it is possible that we could go all the way to the $60s."

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ron.white@latimes.com

Times staff writer Elizabeth Douglass contributed to this report.

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