Monday, September 15, 2008

Gasoline prices headed much lower - after the "Ike panic" fades

Although there has been some panic about Hurricane Ike causing a spike in the retail price of gasoline, much of that is grossly overblown and retail gasoline prices are actually headed much lower in the near future. I see a  frightening headline in The Washington Post on an article entitled "Gas Prices Continue to Rise as Hurricane Destroys Oil Facilities." Yes, according to AAA, prices have spiked by about 15 cents or so, but what is this about "Destroys Oil Facilities"? Have the majority of oil refineries, ship terminals, and pipelines really been "destroyed"??!! After all, I read elsewhere that Wall Street was relieved that so little damage was done. The Post says "federal officials said a preliminary survey of damage found that a number of production platforms in the Gulf of Mexico had been destroyed by Hurricane Ike." But later this same article says that "It was unclear yesterday how badly the storm had crippled the Gulf oil infrastructure. Eileen Angelico, a spokeswoman for the Interior Department's Minerals Management Service, said flyovers Saturday and yesterday showed 10 destroyed oil platforms. There are 717 manned platforms in the Gulf, and as of yesterday 591 of them had been evacuated in anticipation of the storm." 10 out of 717 does not sound like the kind of major disaster that the headline seems to be proclaiming. And then, finally, the article closes with the truth:

... only four of 17 oil refineries on the Texas coast from Corpus Christi to Beaumont remained closed, six were ramping up and the rest were operational, Kolevar said.

Operators of two major pipelines that serve the Eastern Seaboard, the Plantation and Colonial pipelines, said they were able to resume operations yesterday carrying diesel, heating oil, jet fuel and gasoline from the Gulf Coast at reduced rates.

Exxon Mobil said power was restored to its Baytown facility and that a start-up plan was being developed. Its Beaumont facility remained without power. Bill Day, a spokesman for Valero Energy, the nation's largest refiner, said it would take several days for power to be restored to its Houston, Texas City and Port Arthur refineries. Shell said last night that two of its refineries had not resumed operations while two others were operating on a limited basis.

Nonetheless, assessment crews found no significant structural damage to the Valero facilities. Exxon Mobil said damage appeared to be limited at its Baytown complex. Shell, too, had only moderate damage to some of its facilities, including its Pasadena terminal, which it reopened. Its Houston terminal, however, did sustain some damage and was being assessed further, the company said.

In other words, there is no major disaster at all for "oil facilities"! Yes, some offshore rigs may have been "destroyed", but all of the important facilities seem to be in decent shape.

In fact, Wall Street agrees with my assessment, with October wholesale gasoline futures down over 16 cents to $2.6034 per gallon. That will translate into a retail price of $3.20 to $3.25 a gallon, which would be 60 cents below the price of $3.842 reported by AAA today. A big part of that price gap is good old-fashioned price gauging, some actual short-term regional supply disruptions, and a good measure of outright uncertainty, but the overall tone of the Post article did little to enlighten consumers or businesses or policymakers.

And Wall Street has the price of October crude oil futures down $4.76 to $96.42 a barrel.

Neither the facts on the ground nor the view of the markets justify the very negative tone of the Post article.

My conclusion: It is an election year and The Post is improperly engaging in fearmongering to promote its own political interests.

The article is in fact filled with a lot of useful facts, but the overall tone and style of presentation is decidedly not enlightening to the casual reader or browser of headlines.

-- Jack Krupansky


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