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Isaac, refinery fire may spike gas prices

Smoke rises from a storage tank on fire

Smoke rises from a storage tank on fire at the Venezuelan Amuay oil refinery, of the Paraguana Oil Refining Complex. (Aug. 26, 2012) Photo Credit: Getty Images

Just in time for Labor Day weekend, gasoline prices on Long Island, already the highest since the spring, could temporarily spike by 10 to 20 cents, analysts say.

Blame Hurricane Isaac and an explosion and fire at Venezuela's largest oil refinery.

"It's a double whammy for gasoline consumers along the East Coast," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn. Particularly hard hit, he said, is "the New York City region, where we already are faced with high prices."

He foresees a 20-cent spike by the weekend. Some other analysts forecast smaller increases of five to 10 cents.

Regular unleaded averaged $4.027 a gallon on Long Island Tuesday morning, the AAA said, the highest level since mid-May. That's 39.7 cents higher than on July 2, the recent low point, and up 1.6 cents from a week earlier and up 7.2 cents from a year earlier. Before July, the average had been declining -- from a recent peak of $4.169 on April 10.

The Venezuela refinery fire, which began Saturday with an explosion that killed 48 people and was reportedly extinguished Tuesday, could be a more serious and longer-term contributor to higher prices in this region than Isaac, experts said. The fire will further tighten supplies that have been constrained all summer by the permanent shutdown of a refinery in the Caribbean and one in Pennsylvania, and the temporary shutdown of another in Pennsylvania.

Analysts say relatively little gasoline comes to this region directly from the Venezuelan Amuay refinery. But the loss of its capacity will force its customers in Venezuela, the Caribbean and Central and South America to seek supplies elsewhere -- in essence, competing for gasoline that might have been destined for the Northeast.

"I think [East Coast pump] prices are headed higher by 15 to 20 cents in the weeks ahead," said Stephen Schork, editor of the petroleum trade newsletter The Schork Report. He said the increase could take longer to unfold than Armstrong predicted, adding: "I don't see it by this weekend, but prices are still trending -- as far as consumers are concerned -- in the wrong direction."

Contributing to that trend, Schork said, are still-rising prices for crude oil futures, which settled Tuesday at $96.33 a barrel on the New York Mercantile Exchange -- up 13 percent from a year earlier.

Partially mitigating the effects of the fire and Issac, however, may be a seasonal drop in demand as the summer driving season ends. Another constraint on prices will be the phase-in beginning Sept. 15 of winter gasoline, which is less expensive to produce, said Tom Kloza, chief oil analyst for the Oil Price Information Service in Wall, N.J. "It tends to be quiet during autumn and early winter."

The approach of Isaac led to the shutdown of 93.3 percent of the U.S. Gulf oil output and of coastal refineries, according to the federal government.

Kloza thinks those shutdowns probably will be short term unless Isaac does more damage than expected. "By the weekend, the refineries closed will be getting restarted," he said.

Gasoline futures, which rose in recent days, fell 2.87 cents to $3.1261 a gallon in trading Tuesday on the New York Mercantile Exchange on speculation that Isaac's effects would be limited.

Further, some energy experts, including Schork, predict that rising gasoline prices will become an issue in the presidential election and that President Barack Obama will order a release of oil from the nation's Strategic Petroleum Reserve to help cool crude oil prices. "That option remains on the table," press secretary Jay Carney told reporters traveling with the president to a campaign event Tuesday in Iowa.

The AAA said prices nationally will be the highest ever this year for a Labor Day weekend.

But the increase won't rival the Long Island record of $4.346 a gallon reached in July 2008.

With Bloomberg News

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