Fuel, Oil Prices Drop Despite Ike

September 15, 2008

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Crude oil and diesel prices continue their decline, despite Hurricane Ike disrupting refinery activity in the Gulf of Mexico.

The U.S. Energy Information Administration's weekly diesel price average, reported each Monday, showed the national average at $4.023 per gallon, down 3.6 cents per gallon from a week ago and down more than 74 cents per gallon from its mid-July record high.

The highest average was reported in the New England region at $4.246; the lowest in the Midwest at $3.973.

Crude oil prices closed below $100 a barrel for the first time in six months Monday, down from record levels over $147 a barrel. Published reports largely credited the turmoil in the U.S. financial markets for the drop, as Lehman Brothers announced it was declaring bankruptcy and Bank of America announced it would buy Merrill Lynch. Wall Street had its worst day since markets reopened after the Sept. 11 attacks of 2001.

In addition, it looked like Hurricane Ike did less damage to the Gulf Coast oil and refinery facilities than feared, even though more than 99 percent of the area's production was still shut down Monday.

As of Sunday evening, it appeared that damage done by Hurricane Ike to oil production and refining facilities was relatively minor. However, refineries had closed in the area as a precaution ahead of the storm -- according to the Oil Price Information Service, the amount of refining capacity shut as a precaution ahead of Hurricane Ike and still down as of Sunday evening totaled 3.979 million barrels per day, or 23 percent of U.S. operable capacity, and other refineries were running at reduced rates.

OPIS noted that the federal government is supplying emergency deliveries of crude oil to refineries from the Strategic Petroleum Reserve, and that the U.S. Gulf Coast is expected to receive its first Middle East gasoline spot cargo in recent memory late in October to alleviate the tight supply situation.

There were reports of gasoline prices spiking in some areas of the country over the weekend to as much as $6 a gallon, prompting investigations of price gouging, but apparently that has not happened to diesel prices.

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