Lines form, fuel prices up as refineries slow output before Isaac
Motorists topped off their tanks Monday in preparation for Isaac, causing fuel shortages at area gas stations trying to keep up, while refineries in south Louisiana began to curtail operations to ride out potential hurricane conditions.
Ronnie Collette, president of R.A. Collette Oil Co., said gasoline distributors began having longer wait times at area refineries Monday.
“You’re having the same problem at the refineries as you have at the stations,” he said.
“You get backed up. No matter how many trucks you have, if you’re waiting in line, you’re not serving the public.”
As refineries in the path of the storm shut down or, more commonly, end “swap outs” and begin only allowing their own distributors to fill their tanker trucks, the lines at local refineries get longer, he said.
Collette said he has all three of his trucks on the road, instead of the usual two, but the wait at the refinery was up to four hours long.
“There’s nothing the refinery can do, it’s just demand.”
Collette said supplies could be tight at the pump leading up to the storm.
“I think it’s probably going to get worse as time goes on because more trucks are going to come to Baton Rouge,” he said. “Right now, I’m probably booked until Thursday, the way it looks.”
The environment after the storm depends on whether any refineries are damaged, he said, noting ExxonMobil was able to get right back into action after previous storms.
Pump prices are heading higher with several major refineries along the Gulf Coast halting production in preparation for high winds and heavy rains.
Fear of reduced gasoline supplies sent wholesale gasoline prices up 7.7 cents, or 2.4 percent, to $3.155 per gallon Monday. The average retail price for a gallon of gasoline in the U.S. rose to $3.75 on Monday, and it could pass $3.80 by Labor Day weekend, said Tom Kloza, chief oil analyst at the Oil Price Information Service.
Oil prices, though, fell Monday because Gulf Coast refineries won’t be using as much in the next few days, and damage to key oil and gas operations in the Gulf of Mexico seemed less likely during the day.
Refineries should also escape damage. But refinery owners often shut down operations in advance of a storm. These facilities consume enormous amounts of electric power and generate steam to cook crude oil into gasoline, diesel, jet fuel and heating oil. If a refinery loses power suddenly, operators can’t properly clear the partially cooked oil out of pipes, and re-starting the refinery can take several days or even weeks.
If refineries instead conduct what is known as an orderly shutdown, they can re-start as soon as the power supply is assured again. The Gulf refineries will likely stay off line for about three days.
About 1 million barrels per day of refining capacity is expected to be shut down, roughly half of the refining capacity in the potential path of the storm. The U.S. consumes about 19 million barrels of oil products per day.
About one-quarter of the nation’s oil is produced in the Gulf of Mexico. As of Monday afternoon, about 80 percent of Gulf oil production was suspended, according to the Bureau of Safety and Environmental Enforcement. Companies had evacuated 346 oil and gas production platforms and 41 drilling rigs.
There was renewed speculation that the Obama administration will release oil from the Strategic Petroleum Reserve, the nation’s emergency stockpile of oil. The White House has said a release is one option for combatting higher oil prices.
Oil was previously released from the SPR to offset price spikes due to the loss of oil production in Libya last year and after Hurricane Katrina battered the Gulf Coast in 2005.
But if oil production and refinery operations can quickly resume after the storm passes, gasoline prices could soon fall on their own.
Kloza predicts that gasoline will begin to fall after Labor Day — if another storm doesn’t affect supplies — as refiners switch to cheaper blends of gasoline and the summer driving season winds down. He expects retail prices to fall 20 to 40 cents per gallon in the next several weeks, and he thinks they could be well below $3.50 per gallon by early November.
Advocate business writer Chad Calder and Associated Press business writers Jonathan Fahey, Samantha Bomkamp and Sandy Shore contributed to this report.