August 31, 2005
St. Paul, Minn. — Many Minnesota gas stations raised their prices to $3 a gallon on Wednesday as supply fears caused panic buying on the nation's oil futures market.
The increase is a 42-cent-a-gallon run-up in 24 hours. Early on Tuesday, the same stations were selling gasoline for $2.57 a gallon. Among the higher prices statewide was $3.11 per gallon on Wednesday at several gasoline stations in Marshall, according to the Web site minnesotagasprices.com. A station in St. Paul was charging $3.14 by Wednesday afternoon.
By contrast, early Wednesday morning stations in Vergas, Dalton and Underwood were selling unleaded regular at $2.49 a gallon.
At the same time, crude oil prices fell in jittery trading Wednesday even after the U.S. government said it would loan oil to refiners struggling in the wake of Hurricane Katrina to keep production of gasoline and other fuels steady. But wholesale and retail gasoline prices leaped higher nonetheless.
In North Dakota, Gene LaDoucer, a spokesman for the AAA says $3-a-gallon prices may "just be the beginning."
In Wisconsin, according to Open Pantry executive Jim Fiene, 28 of his company's stores in the southeastern part of the state ran out of gasoline on Tuesday.
A spokeswoman for Attorney General Mike Hatch said Wednesday that Hatch's office - which was swamped with calls about a huge leap in gas prices at some stations after the Sept. 11, 2001, terrorist attacks - expects to get more calls as the cost of gas climbs.
"People are starting to call," Leslie Sandberg said. "We're trying to be as helpful as we can."
But the attorney general can't do much to help.
State law doesn't stop gas stations from raising their prices as much or as often as they deem appropriate. Some states don't let stations change their prices more than once every 24 hours, but Minnesota is not among them. Other states allow their attorneys general to prevent rapid price increases in emergencies, but Minnesota doesn't.
The 2002 Legislature didn't act on proposed legislation backed by Hatch that would have limited price hikes in a given time period or authorized the attorney general to quash price increases in emergencies, according to a letter from Solicitor General Lori Swanson in response to an inquiry by The Associated Press.
Some of the knottiest issues still to be resolved will be restoring electricity to Gulf Coast pipelines and refineries, which are also suffering from flooding that may have left some important equipment submerged. It will be days before a full assessment of the damage can be done, industry officials and analysts said. A significant amount of oil and gas production in the Gulf of Mexico remains shut and reports of banged-up platforms and rigs continued to trickle in as companies conducted aerial inspections of offshore facilities.
Onshore, wholesale gasoline suppliers have begun capping the amount of fuel they sell to retailers in certain markets to make sure retailers do not take delivery of more fuel than they actually need. Analysts said they do not anticipate widespread fuel shortages and cautioned motorists not to top off tanks out of fear.
With retail gasoline prices surging to record highs and motorists facing $3 a gallon at the pump in a growing number of markets, BP PLC said in an e-mail to clients that it is making "pricing decisions with prudence and restraint in the wake of this natural disaster."
Light sweet crude for October delivery on the New York Mercantile Exchange fell 84 cents to $68.97 a barrel, down from an overnight high of $70.65. On Tuesday, oil futures settled at $69.81, the highest closing price on Nymex since trading began in 1983, although still below the inflation-adjusted high of about $90 a barrel that was set in 1980.
But October gasoline futures surged 17.55 cents to $2.65 a gallon on the Nymex. That is 72 cents, or 35 percent higher, than they were on Friday.
"There's too much uncertainty," said analyst John Kilduff at Fimat USA in New York.
While the details were being worked out about how much oil would be loaned from the U.S. Strategic Petroleum Reserve - and which refiners would receive it - European nations began considering the release of their own government-controlled stockpiles of gasoline and heating oil, according to officials at the Paris-based International Energy Agency. The officials demanded anonymity because the consultations were confidential.
"We're the highest (wholesale) price market in the world right now," said Lawrence J. Goldstein, president of the New York-based nonprofit Petroleum Industry Research Foundation. "We're going to attract a lot of supply here. Price is a magnet for supply."
In another attempt to ease the crunch on motor fuel supplies, the Environmental Protection Agency said it would temporarily allow retailers nationwide to sell gasoline and diesel that does not meet stringent summer air-quality standards.
Gasoline supplies are tightening in some states because some major Gulf Coast energy companies, which were already struggling to meet rising demand before Katrina plowed through the region, have been plagued by floods and power outages that have made it impossible to produce and distribute fuel.
At least eight Gulf refineries remain out of service, and will be for days if not weeks, according to analysts, though most of their owners have not yet publicly announced the extent of any damage. Companies also worked Wednesday to touch base with their employees, some of whom remain unaccounted for. Exxon Mobil Corp., for example, set up a hotline for its workers to call.
Several pipelines that carry gasoline, heating oil and jet fuel to other markets have been stymied by disruptions to power grids and utility workers from around the country converged on the Gulf Coast to help restore electricity.
The shutdown of a pipeline that carries crude oil from the Gulf of Mexico to the Midwest has increased the need for Canadian imports, industry officials said. And the shutdown of pipelines that carry various fuels to markets on the East Coast means that more gasoline and diesel will have to be shipped by barge and by truck, according to John Eichberger, director of motor fuels at the National Association of Convenience Stores.
"The infrastructure was already strained before the hurricane," said oil analyst Fadel Gheit at Oppenheimer & Co. in New York. "The hurricane has made a bad situation worse."
The U.S. Minerals Management Service said Tuesday that 95 percent of the Gulf of Mexico's oil output was out of service, with more than 4.6 million barrels of production lost since Friday. The agency said 88 percent of natural gas output was shut down, resulting in a loss of 25.4 billion cubic feet of lost production since Friday.
While the loss of oil is significant, Energyintel analyst Tom Wallin said Katrina would likely have a more serious impact on the nation's supply of natural gas.
"Crude oil production could be replaced by a release of barrels from the U.S. strategic reserve," he said. "There is no such safety valve for natural gas."
Natural gas futures fell 35.9 cents to $11.30 per 1,000 cubic feet on Nymex. That is almost double the price from a year ago.
Associated Press Writers Steve Quinn in Dallas, George Jahn in Vienna, Austria and En-Lai Yeoh in Singapore contributed to this report.