Gustav could cost you $5 a gallon at the pumps

Posted Aug 31st 2008 9:15AM by Peter Cohan
Filed under: Forecasts, Bad News, Consumer Experience, Chevron Corp (CVX), BP p.l.c. ADS (BP), Economic Data, Oil

Beyond the torment it has already caused in the Carribbean and the stress it places on those who are evacuating the Gulf Coast, hurricane Gustav will lead to higher prices at the pumps. That's because the majority of the Gulf of Mexico's oil production is shut down in anticipation of Gustav's force.

Exactly how much production is being shut down? CNNMoney reports that "energy producers have shut in approximately 77% of oil output and 37% of natural gas production in the Gulf of Mexico." This is affecting three producers particularly hard -- Royal Dutch Shell PLC (NYSE: RDS.A), BP PLC (NYSE: BP) and Chevron Corp. (NYSE: CVX).

And the production shut-down is significant -- "nearly 1 million barrels of daily oil production is now shut down. The last time this happened was in November 2005, after Hurricanes Katrina and Rita. In addition, 2.75 billion cubic feet of daily natural gas production is now shut down" according to CNNMoney.

How much will this cost you at the pumps? The Chicago Tribune reports that if Gustav damages production significantly in the Gulf, prices at the pump could rise to $5 a gallon. It quotes CIBC analyst Jeff Rubin as saying, "The price consequences could be even worse this time. [Due to] oil and gasoline inventories [that] are lower than when Hurricanes Katrina and Rita hit, any replays of the 2005 storm season could see gasoline prices soar to $5 per gallon."

Gasoline prices rose from $2 to $3 after those hurricanes "destroyed more than 100 oil platforms and damaged several refineries" according to the Trib.

The moral of the story: fill up your tanks today.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

Tags: bp, bp plc, BpPlc, chevron, chevron corp, chevron corp., chevroncorp, ChevronCorp., gas, gas prices, gasoline, gasoline prices, GasolinePrices, GasPrices, hurricane, hurricane katrina, HurricaneKatrina, hurricanes, oil, royal dutch, royal dutch shell, RoyalDutch, RoyalDutchShell

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Reader Comments (Page 1 of 1)

9-02-2008 @ 7:58PM

frank said...

Cry Baby Oil Companies lay fear tactics on us and we accept it.
Someone predicts the worst because that's what makes news. And some idiots tag on and oil stocks go up.
I tell you what The World is comming to an end next week.Print that because it fits right into the fear market oil speculation.
Fear is a lie right from the pit of hell and all that predict are nothing but idiots.

8-31-2008 @ 2:30PM

Shaun said...

So much for gas getting cheaper. We really need to concentrate more on alternative energy.

http://www.stocks-simplified.com

8-31-2008 @ 7:05PM

william lindblad said...

perhaps 4.00, but it won't last long.
The real threat is Hannah.

9-02-2008 @ 10:18AM

friggin said...

Shaun
you forget about energy conservation which is much bigger and quicker to achieve results than anything including alternate energy. Just "flip the switch" OFF! I doesnt mean the light switches only. I mean your igntion switch in your car too.. your central air conditioning, hair dryer, too numerous to count. You figure it out on your own because you know what you have , I dont or I have to come over to your place and tell you what not to do...