Gas Prices Up As Gustav Threatens Gulf Refineries

NEW YORK (AP) - Retail gas prices ticked higher Friday, rising for the first time in 43 days as a menacing Tropical Storm Gustav steamed toward offshore oil rigs and coastal refineries.

Crude prices also rose, rebounding from the previous day's selloff as worries mounted that Gustav could grow into a dangerous hurricane before entering the Gulf of Mexico area - home to a quarter of U.S. crude supplies and 40 percent of refining capacity.

The storm was spinning off Jamaica's southwest coast on a course toward Gulf Coast states including Louisiana - three years to the day since Hurricane Katrina slammed into the state and tore up oil rigs and refineries.

Worries about another monster storm have sent wholesale gasoline prices shooting up in the Gulf region, forcing filling stations to pass on the costs by raising pump prices ahead of Labor Day weekend.

A gallon of regular gasoline jumped about a penny overnight to a national average of $3.669, according to auto club AAA, the Oil Price Information Service and Wright Express. That's the first increase since prices peaked at an average $4.114 a gallon on July 17.

"The market is conjuring up images of a replay of three years ago when Katrina wreaked havoc on the refinery system in the Gulf, so we're seeing a little spike from that," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

Early Friday, the storm was centered on Jamaica's southwest coast, about 60 miles west of Kingston, Jamaica, after Gustav triggered floods, mudslides and falling trees that killed 59 people in Haiti and eight more in the Dominican Republic. Forecasters said it could strengthen into a hurricane before striking the Cayman Islands on Friday.

Light, sweet crude for October delivery rose $1.46 to $117.05 a barrel on the New York Mercantile Exchange, after earlier rising as high as $118.76. On Thursday, prices swung wildly before ending the day $2.56 lower at $115.59 a barrel, the first time this week it closed lower.

Analysts attributed the volatility to doubts over whether Gustav will affect offshore energy production.

"Until this hurricane hits, the trend has to be higher toward the $120 level," said Jonathan Kornafel, Asia director for brokerage Hudson Capital Energy in Singapore. "If this turns out to be a nonevent, the market could really come roaring back down."

As Gustav advanced, oil companies were pulling employees off installations.

Royal Dutch Shell PLC has evacuated nearly 670 workers. The company said production will be affected. BP PLC was also removing personnel from the region, while Exxon Mobil said it was bracing its structures for heavy wind and rain.

Transocean Inc., the world's largest offshore drilling contractor, said Thursday it had evacuated about 190 workers from five of its 11 offshore drilling rigs in the Gulf. Transocean has 1,550 workers in the region.

Weather research firm Planalytics predicted as much as 80 percent of the Gulf's oil and gas production could be shut down as a precaution if Gustav enters the region as a major storm.

Forecasters said Gustav might slip between Mexico's Yucatan Peninsula and the western tip of Cuba on Sunday, then march toward a Tuesday collision with the U.S. Gulf Coast - anywhere from south Texas to the Florida panhandle.

"It seems there will be at the very least a slight hit to production," Kornafel said. "But everything is up in the air until Monday or Tuesday."

Gustav is the first storm of the 2008 Atlantic hurricane season to pose a serious threat to offshore oil and gas installations in the Gulf. In 2005, Katrina and Rita destroyed 109 oil platforms and five drilling rigs.

Some analysts, however, noted that lower appetite for oil products in the United States could well dampen Gustav's effect on the Gulf area's oil output.

"U.S. oil demand is currently 1.6 million barrels a day lower than when Katrina struck," said Olivier Jakob of Petromatrix in Switzerland. "There is today more U.S. refining capacity offline for economic reasons than can be destroyed by Gustav."

In other Nymex trading, heating oil futures rose 2.74 cents to $3.21 a gallon, while gasoline prices gained about a penny to $3.03 a gallon. Natural gas for October delivery rose 11.6 cents to $8.166 per 1,000 cubic feet.

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  • by hill tpp mountain Location: muncycreek on Aug 29, 2008 at 11:15 AM
    o no here we go again what does this mean higher gas prices in ky where everything is allready gone up.i dread to see this start up again.everyone stoped talking about gas prices in the last 43 days people think gas ia verley cheep right now cause gas prices has not changed
  • by stunned Location: richmond on Aug 29, 2008 at 10:46 AM
    i can understand prices going up after the hurricane "if" it hits landfall but raising the prices before is ridiculous and WRONG !!! There is a possibility that this hurricane may not be as bad as they are predicting it to be. We all know who is getting rich from this "possible storm".
  • by Anonymous Location: richmond on Aug 29, 2008 at 10:36 AM
    This is why we should not be drilling offshore. Well, this and the fact that it is killing our planet and the species that dwell here. The oil companies have no right to raise prices, after billion dollar profits. They should be hanged.
  • by Aaaaaargh on Aug 29, 2008 at 10:25 AM
    The freakin storm hasn't done ANY damage to anything and the prices are up? I'd pull my hair out if I had any left.


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