• Prices surge, shortages spread
     | September 02,2005

    Supplies ran dry at a small-but-growing number of gas stations across the United States on Thursday as Gulf Coast refiners and pipelines remained hobbled by Hurricane Katrina and motorists nervous about tightening supplies lined up to top off their tanks.

    Most of the stations with "Out of Gas" signs and yellow caution tape draped across their pumps were concentrated along the East Coast and in Midwest states. Station owners said many of the shortages were temporary, exacerbated by panic buying and delayed deliveries.

    A few stations turned off their pumps because wholesale prices were rising so fast that they were selling fuel at a loss — even as prices spiked overnight to levels well above $3 a gallon.

    Governors in Georgia, North Carolina and Pennsylvania urged motorists to conserve fuel and they warned retailers about alleged price gouging. President Bush also called for conservation and sought to calm motorists, saying that Hurricane Katrina would only cause a "temporary disruption" to the supply of gasoline.

    Gas shortages were reported in many states, including Alabama, Florida, Georgia, Illinois, Indiana, Massachusetts, North Carolina, Pennsylvania, Virginia, West Virginia and Wisconsin.

    Resort hotels also reported cancellations as some drivers opted to stay home instead of facing uncertain gas supplies over the Labor Day weekend. And no matter what the underlying causes of the worst gasoline supply crunch since the 1970s, many consumers were alternately incredulous and irate.

    "I've never seen anything like this," said 47-year-old Robert Weems, who waited in line for three hours Thursday morning at a gas station 25 miles north of Jackson, Miss., before the pumps ran dry. He eventually found gas nearby for $2.39 a gallon. "It's a black mark on our energy policy — one storm wiping us out like this."

    Frustration also ran high in cities far from Katrina's path, where the supply of gasoline, diesel and other fuels continues to tighten because of power outages that have stymied Gulf Coast pipelines and refineries.

    "Out of our 34 stores, we've had two or three a day that have been out of gasoline for part of the day," said Jay Ricker, president of Ricker Oil Co. in Anderson, Ind. Ricker's gas is priced at $3.19 a gallon, following a 70-cent-per-gallon increase at the wholesale level since Tuesday.

    Ricker said the worry among some motorists that gasoline will become unavailable is unwarranted and that, by pushing demand to unnatural levels, they were exacerbating the problem. "The system is not designed to have everybody's tank topped off," he said.

    But the country's energy supply chain is designed in a way that puts enormous pressure on Gulf Coast oil producers, refiners and pipeline companies that have been severely limited in the amount of fuel they can deliver to consumers up and down the East Coast.

    President Bush said during a televised news conference that until power is fully restored to refiners and pipelines "it's going to be hard to get gasoline to some markets."

    While it could be weeks before all eight of the Gulf refineries that shut down are back in action, some key pipelines — owned by Colonial Pipeline Co. and the Plantation Pipe Line Co. — had resumed partial service by Thursday. However, analysts said it would take days, if not longer, for the supply constraints to be worked out of the system.

    "Depending on what we learn in the next few days this may be the biggest oil-supply shock since the 1970s. We are now in the days of reckoning," said Cambridge Energy Research chairman Daniel Yergin.

    Tom Kloza, an analyst at Wall, N.J.-based Oil Price Information Service, predicted: "This will get worse before it gets better."

    Gasoline futures surged for the fourth day in a row on the New York Mercantile Exchange, sending prices 25 percent higher in less than a week. Unleaded gasoline for October delivery settled at $2.409 per gallon, an increase of more than 15 cents.

    Oil prices climbed too, even though traders say they are less concerned about the shutdown of petroleum platforms in the Gulf of Mexico than they are with the closure of refineries and pipelines. Nymex crude futures rose 53 cents to settle at $69.47 a barrel.

    The Bush administration has begun loaning oil from the U.S. Strategic Petroleum Reserve and it relaxed environmental restrictions on the type of gasoline sold during summer. Analysts said these steps would have only a marginal impact on supply.

    Also lifting gasoline futures was word that wholesale gasoline suppliers in the U.S. have been limiting the amount of fuel they sell to retailers in certain markets to make sure retailers do not take delivery of more than they need.

    While gasoline shortages have been reported in many states, analysts and industry officials said the problem is not affecting a large percentage of stations at any given time.

    "Prices are fluctuating wildly at the wholesale level and in some cases it's not a question of what the marketer is going to pay, but rather they are concerned about whether they can get gasoline and diesel at all," said Greg Scott, a lawyer representing the Society of Independent Gasoline Marketers of America.

    Scott said the supply situation along the East Coast was "dire" and that it could get worse.

    "The consumer demand, or what I'll call panic demand, is still very high," said Scott Hartman, president of Rutters Farm Stores of York, Pa., which sells gasoline at more than 50 locations.

    Asked if he thought the situation would get better, Hartman noted that he received a fax on Wednesday from a refinery reiterating the "force majeure" clause in their supply contract. Rutters is currently selling gas for $2.99 a gallon, but Hartman said that based on his wholesale costs of $3.35 a gallon on Thursday, pump prices would definitely rise by Friday.

    Even before Katrina, oil producers and refiners had been struggling to meet rising demand around the globe, particularly in the U.S. and China. Energy markets have been on edge because the amount of excess oil production capacity worldwide is only about 1.5 million barrels a day, or less than 2 percent of demand.

    Crude reached a record intraday high of $70.85 a barrel Aug. 30. Oil prices would need to reach $90 to surpass the inflation-adjusted high set in 1980, while retail gasoline prices would need to average $3.11 a gallon.

    The U.S. Minerals Management Service said Thursday that 90 percent of the Gulf of Mexico's oil output was out of service, with more than 7 million barrels of production lost since Friday. The agency said 79 percent of natural gas output was shut down, resulting in a loss of 42 billion cubic feet of lost production since Friday.

    Associated Press Writers George Jahn in Vienna, Austria and Valerie Bauman in Jackson, Miss., contributed to this report.

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