Gustav’s fate likely to determine prices

By STEVENSON JACOBS

Fears about the tropical storm pushed crude oil prices up, but they later fell.

NEW YORK — Drivers might want to top off their tanks early before hitting the road for Labor Day weekend.

Consumers will likely face higher prices at the pump during the busy holiday period as Tropical Storm Gustav swirls toward the Gulf of Mexico on a path that could disrupt energy production. Any damage to oil and gas facilities — especially along the vulnerable Gulf Coast — could send retail gas prices spiking back above $4 a gallon, analysts say.

Fears about the storm pushed crude oil above $120 a barrel Thursday, but prices later fell into negative territory as traders bet the government will tap the Strategic Petroleum Reserve if supplies are threatened.

Regardless of where the storm hits though, gas prices look to be headed higher.

“Prices are going to go up pretty soon. You’re going to see increases by 5, 10, 15 cents a gallon,” said Tom Kloza, publisher and chief analyst at the Oil Price Information Service in Wall, N.J.

That’s because supply worries over Gustav have pushed wholesale gas prices up nearly 40 percent along the Gulf in the last few days, meaning struggling filling stations — even those far away from states like Louisiana and Texas — will have little choice but to pass on the costs by ratcheting up prices at least some.

Gas prices have dropped steadily over the last month as crude has eased from record levels. A gallon of regular gas shed about half a penny overnight to a new national average of $3.66 — 11 percent off the all-time high of $4.114 a gallon reached last month.

But if Gustav does major damage to supplies, consumers could see that record shattered.

“If we have a Katrina-type event, you’re talking about gas prices going up another 30 percent,” said Kloza, whose firm tracks U.S. gas prices by surveying thousands retail outlets around the nation.

Gustav, approaching Jamaica with winds near 70 mph, could regain hurricane strength later Thursday and possibly enter the Gulf of Mexico — home of a quarter of U.S. crude production — as a dangerous Category 3 storm early next week.

Oil companies raced to remove workers from oil and gas platforms and braced structures for withering rain and wind.

The concerns pushed light, sweet crude for October delivery as high as $120.50 a barrel on the New York Mercantile Exchange, but prices later settled $2.56 lower at $115.59.

The whipsaw session was exacerbated by low-volume trading heading into holiday weekend.

Still, oil’s retreat in the face of a possibly dangerous storm surprised some oil market watchers, who attributed the move to speculation that the government could release supplies from the Strategic Petroleum Reserve to counter any drop in production from Gustav. The International Energy Agency said the 27-member body was prepared to tap its emergency stocks if needed.

Oil was also being pressured by a government report showing U.S. natural gas supplies jumped much more than expected last week because of weak demand, sending prices for the fuel plummeting.

Further weighing on oil prices was speculation that demand for energy could fall further if Gustav makes landfall.

“If people start canceling their vacations to the Gulf because of the storm, we’re probably going to have less demand for fuel than anticipated,” said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.