High prices erodes fuel demand, oil prices to cool off

30-Sep-05

Gasoline pump prices rose to a record high this month after Hurricane Katrina damaged refineries and shut production platforms along the Gulf of Mexico. Gasoline prices have reached their highest levels since 1981, causing a reduction in fuel purchase by consumers. US gasoline demand averaged 8.8 million bpd during the past 4 weeks - 2.8% below demand levels in the same period last year. Is this a precursor to a decline in crude oil prices? 7 refineries in Louisiana and Texas hit by Rita remain closed after losing power and sustaining damage, idling more than 10% of US oil-processing capacity. 4 refineries shut because of Katrina account for 5% of the nation's capacity. Crude inventories are in a reasonably good position and getting stacked in the Gulf, increasing supplies. The lack of refinery capacity should cause crude oil inventories to become ample. However, the closure of refineries and efforts to maximize gasoline output may lead to higher heating oil prices when the weather cools. High prices have encouraged conservation at a time of year when demand usually falls, post summer driving season. Heating oil consumption jumps later in the year when temperatures plunge with the arrival of the Northern Hemisphere winter. The Atlantic hurricane season lasts from June through November. September is the peak month for hurricanes in the Atlantic.