SalemNews.com, Salem, MA

Nation/World

August 30, 2012

Hurricane brings along higher gas prices

(Continued)

The price surge is happening at the wrong time and the wrong place for Dickson Stewart, a 56-year-old electronics consultant, who is driving from Minneapolis to Savannah, Ga. this week. He stopped at a BP station in downtown Chicago Tuesday — home to some of the highest retail prices in the country — and paid $4.49 a gallon to fill up his Jeep Wrangler.

Stewart expects gas prices to fall after Labor Day. Analysts say he’s probably right.

As Isaac fades away, the summer driving season ends, and refiners switch to cheaper winter blends of gasoline, stations owners should start dropping prices. “There is some very good relief in sight,” DeHaan says.

When Katrina hit in 2005, the national average for gas spiked 40 cents in six days and topped $3 per gallon for the first time. Isaac likely won’t have the same result, though its full impact on the refineries is yet to be determined.

The refineries are not expected to suffer long term damage. But refiners decided to shut down or run at reduced rates to protect their operations.

These facilities consume enormous amounts of electric power and generate steam to cook crude oil into gasoline, diesel, jet fuel and heating oil. If a refinery loses power suddenly, operators can’t properly clear the partially cooked oil out of pipes, and re-starting the refinery can take several days or even weeks.

In advance of Isaac, refineries instead conducted what is known as an orderly shutdown, so they can re-start as soon as the power supply is assured again. The Gulf refineries will likely stay off line for about three days.

Isaac cut into the amount of gasoline being produced, and raised fears that supplies could fall dangerously low if the storm proved worse than expected. When supplies drop or are threatened, wholesale prices rise. Then distributors and station owners have to pay more to fill up their station’s tanks. They then raise their prices based on how much they paid for their current inventory, how much they think they will have to pay for their next shipment, and, how much their competitors are charging.

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