Latest News

Gas prices surge past all-time highs; soaring energy prices aren't Katrina's only threat to U.S. economy

WASHINGTON—Gasoline prices leaped over decades-old highs Wednesday as economists began lowering their growth forecasts for the U.S. economy after Hurricane Katrina.

Gas prices roared past $3.15 a gallon around the nation's capital, leaving behind the inflation-adjusted high of $3.11, set in March 1981. It was a scene that played out in many U.S. cities, some of which were running out of fuel in what began to feel like a repeat of the 1970s-1980s oil crisis.

Several Southeastern cities that rely on deliveries of fuel from the Gulf of Mexico couldn't meet customer demand Wednesday as drivers raced to tank up.

At the Murphy USA gas station in St. Cloud, Fla., near Disney World, 30 or more cars were backed up waiting to fill up. The station blocked its entrances with cones.

"We're running out of gas," employee Alicia Luke said. She said the station, which usually gets gas every other day, was told that it would be five days before it got more.

In Atlanta and in Charlotte, N.C., many stations were experiencing delays in getting supplies and couldn't serve their fearful customers.

At the Darnestown Road Shell station in Gaithersburg, Md., a gallon of gasoline sold for $2.85 on Wednesday morning. By 3 p.m. Wednesday, it had climbed to $3.20.

High gas prices hurt the economy because money spent on gasoline can't be spent on other things. That drags on consumption, which has a domino effect throughout the economy.

In a statement to Knight Ridder, Ben Bernanke, President's Bush's chief economic adviser, suggested that previous crises such as the 2001 terrorist attacks proved that the U.S. economy is resilient.

"As long as there's not permanent damage to our energy infrastructure, the effects on the overall economy should be fairly modest," Bernanke said.

But forecasters already are knocking down projections for U.S. economic growth because of Katrina.

"Right now, given the information that we've got, we've lowered our second-half projection to 4 percent annualized, essentially shaving off half a point," said Steve Cochrane, who specializes in regional economies for the West Chester, Pa.-based consulting firm Economy.com.

Energy prices are likely to sock it to the economy at least for the next month, as oil producers and refiners along the Gulf Coast try to restore operations.

Individual companies have said little about the extent of damage to offshore oil production in the Gulf of Mexico, where a third of U.S. oil production takes place. The Minerals Management Services, part of the Interior Department, estimates that Katrina shut down 95 percent of Gulf of Mexico production.

The oil industry put motorists on notice Wednesday. Red Cavaney, the president of the American Petroleum Institute, which represents the major oil companies, said in a statement "it is becoming increasingly evident that the impact of this devastating storm on oil and natural gas operations will be significant and protracted."

Those were just the words oil traders had hoped not to hear. Contracts for future deliveries of oil traded in the $70-a-barrel range most of the day before retreating in volatile trading to close at $68.94.

Markets mostly shrugged off Energy Secretary Samuel Bodman's announcement that the Strategic Petroleum Reserve would be tapped to lend at least 1.5 million barrels of oil to at least three Gulf Coast refiners. The reserves hold about 700 million barrels of oil in underground salt caverns in Texas and Louisiana.

In another move intended to calm fears of gasoline and oil shortages, Environmental Protection Agency Administrator Steve Johnson said Wednesday that he'd relax environmental restrictions on motor fuels nationwide, meaning that more gas can be imported or produced in the United States.

Those actions help, but energy analysts said oil supplies were only part of the problem. Pipelines aren't pumping, and power is out at many refineries.

"In the short term, the main market problem at the refining level is the shortage of product, not inputs. It's mostly a problem of product (gasoline), not crude oil," said Antoine Halff, the director of global energy for the risk analysis firm Eurasia Group.

Breakaway oil rigs and damage to port facilities that supply offshore oil activities mean oil and gasoline prices are likely to stay high and could go higher.

Katrina's economic impact is being felt far from the Gulf Coast. Barge operators in Missouri and farmers in Iowa are worrying about how long the Mississippi River might be closed to barge and ship traffic.

"A lot of our grain here goes down the river to the Gulf of Mexico, and we don't know how long it is before the ports down there open," said LuAnn Robinson, a grain negotiator for the National Farmers Organization in Ames, Iowa. "There's going to be piles all over if we can't ship down the river."

Barge operators don't have anywhere to drop off the last stored grains, and the fall corn harvest begins in less than a month.

"All the facilities are knocked out. We can get everything but there are no facilities down there," said Bruce Engert, the general manager of the Missouri Barge Line Co. in Cape Girardeau, Mo.

Gulf Coast ports in Texas are scrambling to handle cargo that must be diverted from Alabama, Mississippi and Louisiana.

"This will not be cleaned up quickly. This is going to be a slow process," said Floyd Gaspard, the director of the Port of Port Arthur, Texas.

———

(c) 2005, Knight Ridder/Tribune Information Services.

PHOTOS (from KRT Photo Service, 202-383-6099): wea-katrina

GRAPHICS (from KRT Graphics, 202-383-6064): 20050831 KATRINA refineries, 20050830 Oil reserves

Need to map

  Comments