Newsmax TV & Webwww.newsmax.comFREE - In Google Play
Newsmax TV & Webwww.newsmax.comFREE - On the App Store
Tags: obama | gasoline | holiday | price

Obama Feels Pressure as Gasoline Nears Holiday Record

Tuesday, 28 August 2012 04:17 PM EDT

Hurricane Isaac and a deadly blast at Venezuela’s Amuay refinery pushed gasoline to an almost four-month high and threatened to revive a debate about energy costs in the run-up to the presidential election in November.

Futures jumped Monday in New York as Isaac forced closures of Gulf Coast refineries and reduced rates at others. That market is also reeling from an Aug. 25 explosion in Venezuela that killed at least 48 people and closed the country’s largest fuel-making plant. Futures are up 22 percent since their 2012 settlement low of $2.5501 a gallon on June 21.

Prices at the pump will be the highest ever for the U.S. Labor Day holiday, AAA said Monday. The surge reignites an issue that has pitted President Barack Obama, who has called for the elimination of billions of dollars of subsidies enjoyed by the oil and gas industry, against the presumptive Republican nominee Mitt Romney. It also spurs speculation that Obama will release supplies from the Strategic Petroleum Reserve to ease prices for consumers.

“Given this administration’s belligerent rhetoric against the oil industry, it’s going to be very easy for Romney to pin the blame on Obama,” said Stephen Schork, president of Schork Group Inc., a consulting firm in Villanova, Pennsylvania. “The White House will be on the defensive. It makes an SPR release likely sooner rather than later.”

Gasoline for September delivery advanced 7.68 cents, or 2.5 percent, to $3.1548 a gallon Monday on the New York Mercantile Exchange, the highest level since April 30. Futures fell 4.16 cents, or 1.3 percent, to $3.1132 as of 1:38 p.m. Tuesday.

Retail Prices

Retail prices for regular grade increased 0.6 cent to $3.756 a gallon Monday, the highest level since May 7, according to AAA, the largest U.S. motoring group. Gasoline at the pump cost $4.138 in California Monday, $4.008 in Connecticut and $3.973 in New York.

The nationwide average fuel cost rose to $3.75 a gallon on Sunday, the highest price ever for that day, Michael Green, a spokesman for AAA in Washington, said in an e-mail.

“We expect the national average price of gasoline for Labor Day this year to be the highest ever for the holiday,” he said.

Drivers could be paying $4 a gallon by the end of September, Schork said. The first presidential debate is scheduled for Oct. 3.

Winter-Grade Fuel

Gasoline futures for October delivery fell 1 percent to $2.9215 a gallon as of 1:30 p.m. Tuesday, about 19 cents a gallon below the September contract. The discount reflects speculation that demand will slip as peak driving season ends with the Sept. 3 Labor Day holiday, and the switch to winter-grade fuel that doesn’t have to meet as stringent emissions rules and is cheaper to produce.

Obama has described his energy strategy, unveiled in March, as an “all-of-the-above” approach that encourages fossil fuel development, energy efficiency and renewable technology. He has also called for a repeal of what he estimated is $4 billion in subsidies every year.

Romney’s energy plan, released last week, faulted Obama for discouraging drilling on federal land, stifling offshore exploration, imposing costly regulations and subsidizing uncompetitive technology that can’t survive without government backing.

Solyndra LLC, a solar-panel maker in Fremont, California, that received a $535 million U.S. loan guarantee, sought bankruptcy protection in September and fired its 1,100 workers.

Refinery Shutdowns

Gasoline advanced Monday as refiners including Exxon Mobil Corp., Phillips 66 and Valero Energy Corp. said they are temporarily shutting down Gulf Coast plants as Isaac churned toward the Louisiana coast.

Six plants with a combined ability to process about 1.15 million barrels of crude a day are shut, according to data compiled by Bloomberg. That’s 6.7 percent of U.S. capacity.

In addition, plants including Motiva Enterprises LLC’s Norco, Louisiana, Exxon’s Baton Rouge operations and Marathon Petroleum Corp.’s Garyville facility are at lower rates. Valero’s Memphis plant was said to be operating at minimum rates after Royal Dutch Shell Plc shut the Capline pipeline that transports crude oil from the Gulf to the Midwest.

“Right or wrong, higher gasoline prices don’t help Obama,” Kyle Cooper, director of research for IAF Advisors, a Houston consulting group, and Cypress Energy Management LP, a $20 million natural-gas hedge fund based in Houston, said by phone Monday. “All Obama’s rhetoric and all his propaganda can’t do a thing if the refineries are flooded. He can’t change physics. And Romney will take the other side of it, but this storm is not Obama’s fault.”

Storm Path

The storm, with top sustained winds of 75 miles per hour, was 55 miles (121 kilometers) south-southeast of the mouth of the Mississippi River, the National Hurricane Center said in a special advisory at 1 p.m. central time Tuesday. It was moving northwest at 10 mph on a track to landfall in southern Louisiana later in the day or early Wednesday.

The strain on the U.S. refining system is compounded by increased fuel demand from Latin America and the Aug. 25 explosion and fire at that killed at least 48 people and halted production from Petroleos de Venezuela SA’s Amuay plant, which can process 645,000 barrels of oil a day.

PDVSA, as the state-owned oil producer is known, is the sole owner and operator of the refinery. The Paraguana complex has a capacity of about 950,000 barrels a day, second in size to Reliance Industries Ltd.’s Jamnagar refinery in India, data compiled by Bloomberg show.

Amuay Fire

The Amuay fire highlights the risk to supplies of oil products from large, aging plants and may lead to more exports from Asia to the U.S., according to Goldman Sachs Group Inc.

The U.S. became a net-exporter of products such as gasoline and diesel last year for the first time since World War II as Latin American refining capacity remained insufficient to meet the region’s demand.

Venezuela imported an average of almost 38,000 barrels of refined products from the U.S. in the first five months of the year, up from about 23,000 barrels in the same period last year, according to data from the U.S. Energy Information Administration. Brazil imported an average of about 146,000 barrels a day this year through May, an increase of 17 percent from last year, the data show.

Political Cover

These events give the Obama administration political cover for releasing fuel supplies from the reserve, a move that may bring prices down before the election, Schork said.

“Events are certainly working to give the appearance of a fundamentally-based decision to make what is ultimately a political move,” Schork said.

The SPR, with a capacity of 727 million barrels, is the largest stockpile of government-owned fuel in the world. Established in the wake of the Arab oil embargo that began in 1973, the reserve allows the president to respond to supply disruptions that threaten the U.S. economy. Releases include those made in 1991 at the outset of Operation Desert Storm, in 2005 following Hurricane Katrina, and last year after civil war in Libya throttled the country’s exports.

A release of crude from the reserve may fail to bring down gasoline prices if refineries remain shut for an extended period of time, Cooper said. The closures cut crude demand while reducing supplies of fuel, he said.

“The storm combined with events in Venezuela has reduced crude demand significantly while lowering crude production in the Gulf,” Cooper said. “While psychologically an SPR release might lower oil prices, it will not necessarily translate to lower gasoline prices.”

The Gulf of Mexico is home to 44 percent of U.S. refining capacity, 23 percent of oil production and 7 percent of natural-gas output, according to the U.S. Energy Department.

Companies including BP, Apache Corp., Murphy Oil Co., and Anadarko Petroleum Corp. said this week that production has been temporarily shut and workers evacuated as Isaac approached.

© Copyright 2024 Bloomberg News. All rights reserved.

Tuesday, 28 August 2012 04:17 PM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.
Get Newsmax Text Alerts

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved
© Newsmax Media, Inc.
All Rights Reserved