Isaac brings higher gas prices, south and north

[August 30, 2012]  NEW YORK (AP) -- Drivers are being hit with the biggest one-day jump in gasoline prices in 18 months just as the last heavy driving weekend of the summer approaches.

As Hurricane Isaac swamps the nation's oil and gas hub along the Gulf Coast, it's delivering sharply higher pump prices to storm-battered residents of Louisiana and Mississippi -- and also to unsuspecting drivers up north in Illinois, Indiana and Ohio.

The national average price of a gallon of gas jumped almost five cents Wednesday to $3.80, the highest ever for this date. Prices are expected to continue to climb through Labor Day weekend, the end of the summer driving season.

"The national average will keep ticking higher, and it's going to be noticeable," says Patrick DeHaan, senior petroleum analyst at Gasbuddy.com

The wide storm shut down several refineries along the Gulf Coast and others are operating at reduced rates. In all, about 1.3 million barrels per day of refining capacity is affected. So, it's no surprise that drivers in Louisiana, Alabama, Mississippi and Florida saw gas prices rise by a dime or more in the past week.

But some states in the Midwest are suffering even more dramatic spikes. Ohio prices jumped 14 cents, Indiana prices soared 13 cents and Illinois prices jumped 10 cents on Wednesday alone according to the Oil Price Information Service. Days before Isaac is expected to douse those states with rain, the storm forced the shutdown of a pipeline that serves a number of Midwest refineries.

Drivers in the region were angry and confused. ""I saw gas in my neighborhood for $3.56 a gallon just Tuesday morning, and now I'm paying $3.95. It's terrible," said Mary Allen of Cincinnati as she paid $20 for just over five gallons of gas. She wondered how Isaac could drive up gas prices in Ohio -- and then resigned herself to a holiday weekend without travel.

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.

Prices spiked particularly high in the Midwest because Isaac forced Shell to close a pipeline that delivers crude from St. James, La. to refineries in the region.

Gasoline prices are particularly vulnerable to spikes around this time of year. Refiners keep a low supply of more expensive blends as driving season ends, knowing they'll soon be able to make cheaper winter blends of gasoline.

"We are really working with a just-in-time delivery system," said Tom Kloza, chief oil analyst at the Oil Price Information Service.

Pump prices were on the rise even before Isaac blew in. The average price for gas rose about 40 cents from July 1 to mid-August because of higher oil prices and refinery problems in the Midwest and West Coast. At $3.80 per gallon, the national average is the highest since May 1 and well above the previous record for Aug. 29, $3.67 in 2008.

Wednesday's jump of a nickel was the 10th biggest one-day jump on record, according to OPIS, and the biggest since the average price rose 6 cents on February 15, 2011 when turmoil in Libya was rising.

But prices could quickly come down if refineries can soon get up and running. Crude oil prices fell Wednesday and wholesale gasoline prices fell the past two days, suggesting the spike in retail gasoline prices could be short-lived. Americans will soon do less driving and the switch to cheaper blends will be well underway by mid-September.

That's still too late for Sharon Simon of Gadsden, Ala. She's driving 900 miles north to her daughter's wedding in Olean, N.Y. this weekend, and will now have to spend an extra $30 to $50 on gasoline for the trip. "Just as we are getting ready to head out the prices go up," she said. "I'm fed up with the surge in price every time there is a holiday."

[Associated Press; By JONATHAN FAHEY]

AP writers Lisa Cornwell in Cincinnati and Michelle Janaye Nealy in Chicago contributed to this report.

Follow Jonathan Fahey on Twitter at http://twitter.com/JonathanFahey.

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