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Oil Prices Fall, Gas Prices Surge

Accusations of gouging in wake of Ike's wrath

By Mark Huffman
ConsumerAffairs.com

September 15, 2008

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Hurricane Ike's rampage through the Gulf of Mexico over the weekend has resulted in a nationwide spike in gasoline prices, even as oil prices fall below $100 a barrel.

What's going on?

It appears to be a case of defensive pricing by gasoline retailers that hasn't been entirely justified by events, according to some government officials.

As Ike, a one-time category 4 storm, headed for the gulf, oil rigs were evacuated and refineries along the Texas coast were powered-down. Fourteen refineries along the Gulf Coast shutdown, stopping the flow of more than three and a half million barrels of fuel a day.

This led gasoline dealers to believe that gasoline would be in short supply for sometime, perhaps several weeks. As a result, late last week gasoline prices at the retail level surged – in some cases by nearly a dollar a gallon.

The average price of a gallon of regular gas rose more than six cents nationwide, to just under $3.80, according to AAA. That's about 30 cents less than the peak price for gas, reached on July 17.

Though refineries and pipelines escaped significant storm damage, it will take a number of days to bring all of them back online at full capacity. In the meantime, the U.S. Department of Energy has released more than 300,000 barrels of fuel from its strategic reserves.

At the same time, oil prices continue to fall. Not only did the storm not damage oil rigs, there continues to be a glut of oil on the market. With refineries shut down for the time being, there are fewer customers to buy crude oil. As a result, oil prices on the Nymex in New York traded in the $98 a barrel range.

The discrepancy between oil prices and gas prices at the pump has not gone unnoticed. President Bush has warned that the Federal Trade Commission would be on the lookout for price gouging, while a number of states have already taken action.

In Kentucky, far from the impact of Hurricane Ike, Gov. Steve Beshear signed an executive order declaring a state of emergency to prevent price gouging in the commonwealth. Attorney General Jack Conway said he asked the governor to act in the wake of what he called an influx of reports from consumers regarding price spikes, and in some cases, rationing.

The emergency declaration, issued before Hurricane Ike hit the coast, triggered several consumer protection measures. Among them, it empowers the attorney general to investigate and prosecute, where appropriate, those who sell gasoline, building supplies and other goods for predatory pricing in a time of disaster.

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