Below The Beltway

As with Hurricane Katrina and Hurricane Rita, the approach of Hurricane Ike toward the Texas Gulf Coast is bringing a spike in gasoline prices:

As Hurricane Ike bore down on one of the world’s largest concentrations of oil refineries, workers scrambled to shut down production and join hundreds of thousands of residents evacuating the area.

The resulting spike in gasoline prices could be short-lived if damage is light. But the longer-term impact won’t be known until the storm passes and floodwaters subside.

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A shift in Ike’s path Thursday — into a heavy cluster of Gulf Coast refineries — sent gasoline futures surging by 11 cents a gallon, to $2.86 a gallon. Along the Gulf Coast, wholesale prices skyrocketed to nearly $5 a gallon, up from $3 to $3.30 on Wednesday, according to Tom Kloza, publisher of the Oil Price Information Service.

Demand for gasoline usually drops in the fall, and refiners normally cut back on inventories. But gasoline stocks already are at their lowest levels in seven years after refineries shut down ahead of Hurricane Gustav. Any further loss of production could have an immediate impact.

“We’ve had two hurricanes two weeks apart that have taken out probably 3 million barrels a day of refining capacity or 16 percent of the nation’s total,” said oil industry consultant Andy Lipow. “Supplies are going to get thin.”

The price of regular at our local station increased from $ 3.31 on Monday to $ 3.46 today and there are signs of larger increases elsewhere in Northern Virginia. How long it lasts will depend on how much damage Ike actually does.

The risks, though, are possibly even more severe than they were three years ago, because Ike is aimed directly at the heart of America’s oil and gas industry:

The heart of the U.S. oil industry lies exposed to a crippling storm for the second time in two weeks as Hurricane Ike bears down on the Houston area and the Gulf of Mexico.

Companies have evacuated offshore production platforms and drilling rigs, and closed down refineries along the Gulf Coast that account for 19 percent of entire nation’s oil refining capacity.

Once again the nation’s energy security is being threatened by the weather rather than the geopolitical factors. Strategists usually focus on the U.S. reliance on imports of foreign oil, but lately the greater fear has been for the nation’s own supplies and their vulnerability to Mother Nature.

“Ike couldn’t have come at a worse time,” said Daniel Ahm, an energy economist at Lehman Brothers. “Gustav had already ripped through with surprisingly little damage, but it is reminiscent of what happened with Rita and Katrina.” The first of those 2005 storms caused relatively little damage, he said, but the second caused more in part because it “was inflicted on already weakened infrastructure,” Ahm said.

For most of the past two weeks, more than 90 percent of the gulf’s production has been sealed off, knocking out about a quarter of the country’s total oil production. As of midday Thursday, oil company personnel had been evacuated from 562 production platforms, three-quarters of the manned platforms in the Gulf of Mexico.

The concentration of refining along the Gulf Coast is as big a problem as the suspension of gulf oil and gas production. About 40 percent of the nation’s oil refining capacity lies along the coast, with about 23 percent of it along the Texas coast alone. The refinery shutdowns could create near-term problems for the prices of refined petroleum products — gasoline and diesel fuel — even as prices for crude oil remained weak

Interestingly, while this is happening, the spot price of oil actually dipped below $ 100 per barrel today.