In an anticipated move, President George W. Bush today authorized tapping the nation’s Strategic Petroleum Reserve (SPR) to make up for crude oil lost due to the shutdown of oil rigs and tankers in the Gulf of Mexico near hurricane-stricken New Orleans. But there won’t be enough refineries to refine it for the foreseeable future. That’s because Hurricane Katrina also took off line oil refineries in the afflicted Gulf Coast region, which normally provide 30% or better of the nation’s refining capacity.
“Releasing some crude from the Strategic Petroleum Reserve is well and good and helps psychologically with the market,” Denton Cinquegrana, markets editor for Oil Price Information Service (OPIS), told Fleet Owner. “But it will do little to put out the fire. It’s like trying to fight a four-alarm fire with a water gun. If you don’t have refineries to refine the crude oil, you still have problems. Without refinery [capacity] it’s not useless, but darned close.”
Trucking analyst Chris Brady, president of Commercial Motor Vehicle Consulting (CMVC), concurred that crude oil is not the problem. “Refinery capacity is the issue,” he told FleetOwner. “Having the Louisiana area down has reduced capacity that was already tight in the U.S.”
According to OPIS’ Cinquegrana, Chevron has a large refinery in Pascagoula, MS “they have to get restarted sooner rather than later.” He said there are “give or take eight refineries not operating and the best-case scenario for refineries waiting on power is two weeks. At St. Charles, LA, there’s nothing much [refiners] can do without power or people. Officials are discouraging people from those areas. Power is turning out to be a huge factor. Without power they can’t get pumps running to clear water from refineries.”
Cinquegrana said that at this point a lot of refiners remain tight-lipped. “We’re still waiting on damage assessments from refiners,” he noted. “But there are some pipelines down in the Mississippi River, so some crude may be sent to refiners in the Midwest. But there will still be problems getting it to them. It’s a horrible situation right now.”
While news reports this afternoon predicted retail prices for gasoline might soon rise above $3.00 per gallon because of Katrina, Cinquegrana observed that this so far is “more a gas [price increase] event than diesel. Diesel has had its huge share of price increases. For gasoline, $3 [per gallon] will be a reality for a lot of the country this weekend. This might be the straw that breaks the camel’s back and [Americans] may change their driving habits. That doesn’t mean diesel won’t rise-- it will. It’ll jump big time as well. Diesel will be right up there with gas [over time].”
However, CMVC’s Brady expects most for-hire carriers will continue to be successful passing along diesel price increases to shippers. “Thanks to tight capacity,” he said, “carriers will still be able to pass these costs along. Those that will be hurt the most will be private fleets, which must either assess a surcharge, as Waste Management, or increase the price [to consumers] of the products they haul.” Diesel prices, he added, will spike and then drop once the Gulf-area refineries now out of commission start producing again.
Although oil prices earlier today surpassed $70 per barrel on European markets, according to CNN, prices fell back to $69.56 per barrel after word came the U.S. would be dipping into the SPR. CNN also reported that eight refineries were shut down by Katrina, half of which produce gasoline.