- The Washington Times - Friday, September 23, 2005

Oil and gasoline prices fell yesterday after Hurricane Rita weakened and appeared headed northeast of the Houston area’s vital refineries.

Several refineries that together make about 7 percent of the fuel consumed by Americans remained in the path of the storm, however, as it neared its expected landfall early today around Port Arthur, Texas, at the state line with Louisiana. Meteorologists said Port Arthur could go entirely underwater in the storm surge.

Despite the lingering threat, wholesale gasoline prices fell 2.5 percent on the New York Mercantile Exchange, and premium crude fell 3.5 percent to $64.19 a barrel.

Pump prices nationwide have receded to $2.79 for a gallon of regular unleaded after reaching a record high of $3.07 on Sept. 6. In the District, the average fell 1 cent to $2.97 yesterday, according to AAA.

“There is some cause for hope that it won’t be as bad as it could have been,” said Peter Beutel, president of Cameron Hanover Inc.

“The market does seem to be emitting a sigh of relief that we are not going to go up the Houston Ship Channel with this,” he said, referring to the vital concentration of refineries between Houston and Galveston that lay in Rita’s earlier projected path.

Regardless of whether any Texas refineries are damaged by the storm, nearly all of them had closed by yesterday and evacuated employees in anticipation of Rita’s arrival.

That means some gaps in deliveries of fuel to the network of pipelines snaking from the Gulf Coast to Washington and other East Coast and Midwest destinations will inevitably occur. Just restarting a closed refinery takes several days.

Energy analysts expect that motorists will face higher prices at the pump for a while, if only because of the disruptions caused by evacuation of nearly all Gulf Coast oil facilities from Corpus Christi in south Texas to the Louisiana state line.

“We’ll likely see a very temporary run-up toward $3, then head back down again. How far down remains to be seen,” said Michael Burdette, a senior oil analyst at the U.S. Energy Information Administration.

The spike in prices could last two to three weeks, depending on whether refineries are damaged enough to be kept offline. Many Louisiana refineries were unable to start for several days because of power outages caused by Katrina.

“If we have similar damage to refineries in Texas, I would think the baseline price would be higher [than $2.50]. It depends on how many refineries are damaged and how much,” Mr. Burdette said.

“The most likely scenario is the storm will go through and inflict some damage. The refineries for the most part handle wind just fine. It’s the water that causes some problems,” he said.

In the hours before the storm made landfall, refineries accounting for nearly 30 percent of U.S. fuel-making capacity had closed in Texas and Louisiana, including the four refineries indefinitely shut by Hurricane Katrina.

The shutdowns affect supplies of heating oil, diesel, jet fuel and other refined products besides gasoline.

With limited supplies of fuel being produced, major Colonial and Explorer pipelines feeding consumers on the East Coast and in the Midwest also were planning full or partial shutdowns.

Explorer Pipeline, which operates 1,400 miles of lines providing about 10 percent of the fuel used in the Midwest, stopped operations yesterday as a precaution, the company said. Cities affected include Houston, St. Louis, Chicago and Tulsa, Okla.

The Louisiana Offshore Oil Port, the biggest U.S. oil import terminal, ceased unloading oil tankers and stopped deliveries to refineries — the major second stoppage at that vital facility in a month.

Virtually all oil and gas production in the Gulf of Mexico had halted as of yesterday, and the workers manning oil platforms, drills and rigs had been evacuated.

The stoppages from both hurricanes, because they affect heating oil and natural gas prices, are expected to send home-heating costs soaring from 35 percent to 77 percent this winter, according to Energy Information Agency estimates.

With so much refining capacity offline, “it’s difficult to figure out how that won’t cause problems,” said Bill O’Grady, an analyst with A.G. Edwards. He was puzzled that the price of fuel in the past two days was “falling when it should be rising.”

AAA Mid-Atlantic spokesman John Townsend said motorists aren’t ready for another jump in pump prices above the $3 mark.

“The mid-three dollars during Hurricane Katrina were too much for the economy and too much for consumers,” he said. “We don’t think we can take another round of this.”

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