Dry Run

Shortages, outages, supply issues, gouging actions dogging parts of U.S. affected by Ike

Published in CSP Daily News

WASHINGTON -- Parts of the nation are still running short of gasoline five days after Hurricane Ike knocked out 20% of the nation's refining capacity, reported USA Today. The crunch is especially severe in the Southeast and Mid-Atlantic, which get their fuel through pipelines from the Gulf region. It is largely hitting stations and convenience stores not affiliated with big brands.

In South Carolina, many stations were running dry, said the report, although the situation improved Wednesday as oil companies started drawing from gasoline reserves, said Michael Fields, head of the South Carolina [image-nocss] Petroleum Marketers Association. Premium gasoline was especially scarce. Previously, most stations could not even get regular. "We aren't seeing quite as many bags on the nozzles," he told the newspaper.

About half of Mapco's 500 stations in the Southeast had no gasoline after Ike hit, company spokesperson Paula Lovell told the paper. Many were still dry Wednesday, but supplies have increased, she said.

In Virginia, about 15% of stations have no gasoline, though distributors are scrounging in other states for fuel. "People are going to Maryland, Pennsylvania and all the border states to pick up product," Mike O'Connor, head of the Virginia Petroleum, Convenience & Grocery Association, told USA Today.

Many unbranded pumps were down because stations refuse to pay wholesale prices that are at least $1 higher than those charged to branded affiliates. That was largely why about a quarter of Sheetz Inc. convenience stores in Maryland, North Carolina and Virginia had no gasoline, executive vice president of marketing Louie Sheetz told the paper. "It's an unfounded price point [oil companies] were putting on it," he said. "They said, 'How bad do you want it?' I said, 'Not that bad'."

Sheetz said the stations were pumping again Wednesday as wholesale prices fell.

Meanwhile, 12 refineries along the Gulf are still shut down after two restarted, said the report, citing the U.S. Department of Energy. Much of the capacity will likely be back online in 10 days or so, it added. The Colonial Pipeline, the nation's largest, which serves much of the eastern United States, is operating at a reduced rate.

President Bush, who visited Texas to support the rebuilding and recovery efforts following the storms, said the Energy Department stands ready to release crude oil from the Strategic Petroleum Reserve (SPR) when and where it is necessary to ensure refineries are capable of maintaining operations.

In the wake of Gustav, Energy Secretary Samuel Bodman released crude oil from the SPR. This oil was released at the request of Marathon Petroleum Co. and Placid Oil. Earlier this week, the Energy Department approved the release of additional crude to ConocoPhillips and Placid Oil.

To help ease supply problems, the Environmental Protection Agency (EPA) has waived certain federal fuel requirements in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Ohio, South Carolina, Tennessee, Texas and Virginia. Click here for specific state information.

According to the "This Week in Petroleum" report from the Energy Information Administration (EIA), wholesale gasoline prices saw a classic runup before the storm on fears of seriously curtailed supply at the same time that the distribution system was drained from end-of-season gasoline inventory changeovers and Gustav. Last Thursday, wholesale gasoline prices in the U.S. Gulf Coast region jumped 44%, the biggest daily increase since 1973, as refiners shut down plants in anticipation of Ike. Gasoline for sale at Gulf Coast terminals rose $1.40 to $4.56 a gallon midday Thursday and moved even higher Friday to $4.87 a gallon.

But after the storm, initial infrastructure assessments showed little structural damage, setting the stage for some price recovery in the wholesale markets. Other market factors have also begun to contribute to some softening in soaring wholesale prices. U.S. refinery capacity utilization has been low this year, in large part due to falling petroleum demand. Consequently, refineries not affected by the hurricanes have some room to ramp up and help fill the product gap. The locations of these refineries may limit their ability to get product to where it is most needed. World refining capacity is also available to send extra product imports to the United States, and relative prices are encouraging these imports.

Crude prices fell substantially on bad news from the financial markets that raised further concerns over the global economy and the potential for further softening in world petroleum demand.

EIA's weekly report of average U.S. retail gasoline prices rose for the first time in two months on Monday, moving up 18.7 cents to $3.84 per gallon, but still not fully reflecting the fly up in wholesale prices. Different areas are experiencing widely different prices, depending on local supply conditions. But the current spike in gasoline prices may be short-lived as refineries are placed back on-line and pipelines increase flows over the next few weeks.

Propelled by temporary refinery outages resulting from Gustav and Ike, the U.S. average retail price for regular gasoline increased for the first time in 10 weeks, shooting up 18.7 cents to hit 383.5 cents per gallon. Despite the storm-related price surge, the price was still 27.9 cents below the all-time high set on July 7. Regional price changes were mixed, going up east of the Rocky Mountains and dropping slightly in the West. The average price in the East Coast jumped 20 cents to 380.9 cents per gallon. In the Midwest, the price soared 31 cents to 394.6 cents per gallon, the highest price among the five regions. The price in the Gulf Coast shot up by 20.6 cents to 375.7 cents per gallon. In contrast, the price in the Rocky Mountains fell for the eighth consecutive week, moving down 1.3 cents to 375.4 cents per gallon, now the lowest average price of any region. The price on the West Coast dropped another 4.3 cents, marking the twelfth consecutive drop in that region. At 377.0 cents per gallon, the West Coast price fell below the national average price for the first time since Sept. 10, 2007. The price in California dropped 5.5 cents to 380.4 cents per gallon.

The average U.S. retail diesel price continued its downward slide, dropping another 3.6 cents to 402.3 cents per gallon, reaching its lowest point since April 7. During the past nine weeks, diesel prices have fallen 74.1 cents from the all-time high set on July 14. Prices fell throughout the nation with the exception of the Lower Atlantic section of the East Coast where the price inched up 1.3 cents. The average price on the East Coast, however, dipped 1.8 cents to 408.2 cents per gallon. The Midwest continued to have the lowest price in the Nation, dropping another 4.2 cents to reach 397.3 cents per gallon. This was the first time the diesel price for any region slipped below $4 a gallon since April 7. The average price in the Gulf Coast slipped just 4-tenths of a cent to 401.1 cents per gallon. The price in the Rocky Mountains dropped 6.4 cents to 404.1 cents per gallon. The West Coast price went down more than any other region, slumping 10 cents to 405.6 cents per gallon. In California, the average price plunged 13.2 cents to hit 405.3 cents per gallon.

Click hereto read the complete "This Week in Petroleum" report (updated every Wednesday).

Meanwhile, North Carolina attorney general Roy Cooper has issued subpoenas to nine more North Carolina gas stations as part of his investigation into possible price gouging at the pump. Cooper's Consumer Protection Division issued the latest round of subpoenas demanding information from stations in Buncombe, Craven, Cumberland, Guilford, Iredell, McDowell, Montgomery and Yadkin counties. On Monday, Cooper's office sent seven subpoenas to owners of 14 gas stations in Anson, Ashe, Cherokee, Guilford, Montgomery, Stanley and Transylvania counties.

Michigan AG Mike Cox today announced that his office is questioning more than a dozen station owners identified as having dramatically raised their prices in the 24 hours surrounding Ike's landfall in Texas on Friday. Cox's office sent letters to 16 gas stations demanding detailed information regarding retail pricing, wholesale costs, supplies and other data.

And Florida Agriculture & Consumer Services commissioner Charles H. Bronson announced that he is issuing subpoenas for financial information from 16 major oil terminals in Florida in connection with an ongoing investigation of gasoline price spikes associated with Ike. The subpoenas are seeking records to determine whether any of them illegally increased the wholesale prices that were passed on to retail stations and ultimately customers. The subpoenas call for the records to be provided to Bronson's office in seven days.