Energy Update: Why holiday gasoline is likely to cost more

Published: August 29, 2008

Drivers might want to top off their tanks before hitting the roads for Labor Day weekend.

Consumers will likely face higher prices at the pump during the busy holiday period as weather system Gustav swirls toward the Gulf of Mexico on a path that could disrupt energy production. Any damage to oil and natural gas facilities — especially along the vulnerable Gulf Coast — could send retail gas prices spiking back above $4 a gallon, analysts say.

Fears about the storm pushed crude oil above $120 a barrel Thursday, but prices later fell into negative territory as traders bet the government will tap the Strategic Petroleum Reserve if supplies are threatened.

Regardless of where the storm hits though, prices look to be headed higher.

"Prices are going to go up pretty soon. You're going to see increases by 5, 10, 15 cents a gallon,” said Tom Kloza, publisher and chief analyst at the Oil Price Information Service in Wall, N.J.

That's because supply worries over Gustav have pushed wholesale gasoline prices up nearly 40 percent along the Gulf in the last few days, meaning struggling filling stations — even those far away from states like Louisiana and Texas — will have little choice but to pass on the costs by ratcheting up prices at least temporarily. Gasoline prices have dropped steadily over the last month as crude has eased from record levels. A gallon of regular gas shed about half a penny overnight to a new national average of $3.66 — 11 percent off the all-time high of $4.114 a gallon reached last month.

But if Gustav does major damage to supplies, consumers could see that record shattered. "If we have a Katrina-type event, you're talking about gas prices going up another 30 percent,” said Kloza, whose firm tracks U.S. fuel prices by surveying retail outlets across the nation.

Gustav, approaching Jamaica with winds near 70 mph, could regain hurricane strength later Thursday and possibly enter the Gulf of Mexico — home of a quarter of U.S. crude production — as a dangerous Category 3 storm early next week.

Oil companies raced to remove workers from oil and gas platforms and braced structures for withering rain and wind.

The concerns pushed light, sweet crude for October delivery as high as $120.50 a barrel on the New York Mercantile Exchange, but prices later settled $2.56 lower at $115.59.

The whipsaw session was exacerbated by low-volume trading heading into the holiday weekend.

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