A Temporary Gas Spike Followed by a Drop in Prices


by Matthew C. Keegan - Date: 2008-09-15 - Word Count: 441 Share This!


East coast motorists will need to brace themselves over the next few weeks in the face of high gas prices coming their way. Following production disruptions due to Hurricanes Gustav and Ike, some parts of the country are seeing demand far outstrip supply, forcing prices upwards to record levels.

If you think that paying $4 per gallon for regular gasoline is too much, just wait: some stations will likely be charging as much as $6 per gallon as long as the supply change remains interrupted. Though the short term spike will be painful, consumers have something to look forward to year's end as that is when gasoline prices are expected to retreat below $3.

Disrupting the Supply Change

Gas is a volatile commodity, with prices fluctuating due to supply, demand, market conditions, interruptions due to weather, and more. In the US, gas prices have shifted wildly for any number of reasons, but in Fall 2008 the following factors are weighing in:

Hurricane Gustav - Though hardly as bad as Katrina was in 2005, Gustav flooded much of Louisiana and forced at least a temporary shut down of the thousands of Gulf coast gas platforms. Just before Ike arrived, most of the platforms were back online, but quickly pulled off again when it became apparent that Ike was heading to the Gulf of Mexico.

Hurricane Ike - This Texas-sized storm brought much damage with it as millions lost electricity, which shut down refineries and the pipelines serving a significant portion of the east coast. With 1.3 million gallons of gasoline pulled out of production, quite suddenly demand outstripped supply causing a run on gas stations and a surge in prices.

Wholesale Prices - The gas that is getting delivered to the east coast is being sold to stations at a wholesale price of around $4.85 a gallon. Add in state and local taxes, plus station mark up, and pump prices of $5.50 to $6.00 per gallon is likely. Fortunately, no Texas refineries were damaged by the storms, but power outages have taken their toll. Out of the 3500 Gulf coast gas platforms, only ten were damaged by Hurricane Ike.

Bad News, Followed by Good News

Once the supply disruption has been fixed, gas prices should quickly return to pre-storm levels. But, they won't be stopping there. With a barrel of oil now trading below $100, gas prices are expected to continue to drop as the year closes out, with prices under $3 per gallon likely before 2009 rolls in.

As with anything, lower gas prices should be enjoyed while we have them. Come next summer, prices topping $4 per gallon will again be prevalent, much higher than that if new storms knock out production.


Related Tags: gas prices, diesel, hurricane gustav, hurricane ike, refineries

Copyright 2008-2012 -- Matthew C. Keegan is the owner of a successful writing and marketing business based in North Carolina, USA. He manages several websites and is a contributing writer for Andy's Auto Sport, a retailer of quality Acura Integra headlights and Acura Integra intakes.

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