September 12, 2008

BIRMINGHAM, Ala. - Hurricane Ike, forecasted to be as strong as a Category 3 when it makes an expected landfall along the Texas coast this weekend, has forced the closure of dozens of oil refineries and drilling operations.  This includes the country's largest, the Exxon Mobil Baytown Facility 17 miles outside of Houston with a capacity to generate 586,000 barrels of fuel a day, according to the Bloomberg.com news page.

"We are likely to see an increase in gas prices if Ike affects supplies negatively," said Bryce Sutton, Ph.D., assistant professor of economics at UAB.

The wholesale price of gasoline along the U.S. Gulf Coast jumped from around $3.30 a gallon Wednesday to nearly $5 a gallon Thursday in anticipation of disrupted production in the days and weeks after Ike makes landfall, according to a report from USA Today.  Prices at the wholesale level are paid by gas retailers, and Alabama consumers could be charged an even higher price per gallon so that retailers can turn some profit.

Gasoline supply is not the only Ike-related factor that could drive up gas pump prices.  A potential spike in demand as Gulf Coast-area residents look to stock up on gasoline ahead of any anticipated reduction in supply could also drive the price per gallon up.

"People will stock up on gas to keep generators running and also to fuel vehicles for evacuation.  These factors cause an increase in demand which would also cause prices to go up," Sutton said.

"This is a double whammy, both supply and demand pressures will operate to increase prices" Sutton said.