Hurricane Ike Could Cause a Spike in Prices at the Pump

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Hurricane Ike Could Cause a Spike in Prices at the Pump

HOUSTON -- Energy companies operating in the Gulf Coast aren’t taking any chances with Hurricane Ike set to make landfall by Saturday. As of Thursday, 11 percent of U.S. fuel production capacity was halted, which could give rise to higher prices at the pump, Reuters reported.

"We’re talking about a major storm surge in the Galveston area, which could cause some flooding and damage to refineries and the Gulf Coast is reacting to that in a very strong way," Tom Bentz, analyst at BNP Paribas Commodity Futures Inc., told Reuters.

To date, nine refineries along the Gulf Coast have shut down their operations as a precaution, accounting for 2 million barrels per day. Ike’s 100 mile-per-hour winds could cause a storm surge of 10 to 15 feet, posing a significant risk to refineries. If significant damages are realized, gas prices could reach $5 per gallon at some locations.

Since July, the U.S. energy sector has forced the evacuation of workers from refineries four times. According to data from the Minerals Management Service, oil companies, still reeling from the impact of Hurricane Gustav, have already shut more than 95 percent of their oil production and more than 73 percent of their natural gas output.

"This forecast will leave the high-density area and the ‘heart of the energy production area’ across southern Louisiana and adjacent portions of the northern Gulf away from the damaging wrath of Ike," Jim Rouiller, a meteorologist with private weather forecaster Planalytics, told Reuters. "As a result, I expect operations to ramp up across this large portion of the Energy Production early next week."

The Gulf produces a quarter of U.S. crude oil production and 15 percent of U.S. natural gas production.