Operations

Gas Hikes, Shortages Are Expected

LCT Staff
Posted on March 11, 2004

The vulnerability of the network, combined with low inventories of both gasoline and the crude oil from which it’s made, have the government and energy experts increasingly nervous that some places in the USA will run out of gas.

An accident that has disrupted shipping on the Mississippi River and in the Gulf of Mexico could trigger shortages in the coming weeks.

“It looks like the big bulk terminals in Florida are going to run out in the next few days,” said Tom Kloza, analyst at the Oil Price Information Service.

Big gasoline suppliers were warning their customers of imminent Florida shortages and reduced allocations, he said. The Coast Guard said it had reopened some of the channel, but a backlog of ships remained.

“The U.S. gasoline supply system is not ‘just-in-time' delivery; it’s ‘a-minute-too-late’ delivery,” Kloza said. The river disruption “underscores how hand-to-mouth the supply system is. It’s a preview of the kinds of things that can happen in spades” as demand rises in the spring and summer driving season.

Americans drive more as the weather warms, increasing demand to 9.5 million to 10 million barrels of gas a day in the summer, vs. 8.7 million in the winter months.

“Many signs (point) to a tight gasoline market this driving season,” the U.S. Energy Information Administration said. Analysts were more blunt. “Expect major regional gasoline shortages,” warned A.F. Alhajji, associate professor and energy economist at Ohio Northern University.

When that happens, prices zoom as gasoline wholesalers compete for supplies, giving a regional shortage national impact. Alhajji was confident that “gasoline prices will increase nationwide as we approach the driving season, even in areas that have adequate supplies.”

Average gasoline prices in California and Hawaii have topped $2 for a gallon of unleaded regular, and Nevada is close at $1.968, AAA said.

AAA said regular averaged $1.681 nationwide, up 7.9 cents from January. That's 5.6 cents less than the record average of $1.737 reported last Aug. 30. EIA, using different data, lists the record as $1.747 last Aug. 25.

Gas would have to average $2.89 to surpass the inflation- adjusted record of $1.417 in 1981.

EIA’s weekly report showed gasoline supplies down 1% last week from the previous week. Refining operations were slowed by problems, maintenance and disruptive changes necessary to produce lower-sulfur and summer-blend gas required by clean-air regulations.

Supply worries have kicked up West Texas Intermediate crude oil $1.10 per barrel, to $35.68.

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