Gas Prices Dip Despite Sandy-Related Refinery Problems

NATIONAL REPORT-- U.S. gasoline and heating oil futures fell Tuesday, dropping from pre- Hurricane Sandy highs as several key East Coast refineries and pipelines restored operations. Traders anticipate a big drop in demand for fuel following the devastating storm.

According to several media reports, East Coast refineries reported flooding and power outages, however, as of Tuesday, most of the region's refineries appear to have emerged mostly unscathed by the storm. Meanwhile, several traders pulled back on the risk premium that had driven up prices for three days ahead of the storm as fears of supply problems eased.

Traders instead focused on what they expect will be diminished demand for transportation fuel as many of the region's airports, shipyards, rails and highways remain paralyzed by the storm.

"The demand destruction may be the biggest since right after the attacks of September 11," Phil Flynn, an analyst at Price Futures Group in Chicago, told Reuters.

U.S. crude oil inventories rose 2.1 million barrels last week, according to the industry group American Petroleum Institute (API) -- more than consensus analyst expectations. Gasoline stocks fell 173,000 barrels and distillate stockpiles decreased 2.6 million barrels, the API said.

The U.S. Energy Department said it was delaying the Energy Information Administration's weekly oil inventory report at least until Thursday, depending on the extent of the storm damage.

Last year, Hurricane Irene also struck the Northeast, forcing refiners to pause operations; at the time, refinery outages were short-lived and fuel production recovered quickly. The difference with the current situation is that this year's storm went directly over the East Coast's main refining hub, whereas Irene landed further north, and the disruption comes at a moment when stocks for light products such as gasoline are low by historical standards, said analysts with BNP Paribas.

But enough refiners are restarting their plants after the storm that any supply crunches will be isolated instances, Andrew Lipow, president of consulting firm Lipow Oil Associates, told Fox Business News.

"We should be in fairly good shape," Lipow said. "We have supply returning to the East Coast, supply from imports waiting to come back in, and we have lost a significant amount of demand in the New York-Washington, D.C., corridor."

According to the AAA Fuel Gauge, regular retail gasoline in New York was selling for $3.931 a gallon, up from $3.928 a gallon on Monday.