Gas Prices

As all Americans know, gas prices have shot up since Katrina. I've heard stories from around here about prices at the pump going up dramatically, while people were pumping. The US government has released 30 million barrels of crude oil from the strategic reserve in response. But this really isn't going to help.

Gas prices have been high for a while now, but not necessarily because of the price or supply of crude oil. The bottleneck isn't oil, it's refining. As the Detroit News points out, American refineries, which have declined in number dramatically since 1981, have been operating at 100% capacity. This means the supply of gasoline into the market cannot increase, other than by importing gasoline. The prices have been high because of this restricted supply.

Katrina has made this problem much worse, very quickly. The heart of American oil refining is along the gulf coast, from Corpus Christi to, you guessed it, New Orleans. Half of the US supply of gasoline is refined along this stretch, much of which has been devestated by the storm. In the days before Katrina, evacuations from Gulf refineries reduced production by at least 1 million barrels per day, out of a national total of 17 million barrels per day. With the remaining refineries already working at capacity, there is no easy way to make this up.

So, expect gas prices to keep rising at the pumps. Of course oil is used in a lot more than just gasoline. So the impact of Katrina is just beginning.