Oil fluctuates as Gustav threatens Gulf

August 28, 2008 7:10:50 PM PDT
Tropical storm Gustav now churning near Jamaica, could become a powerful hurricane. And it may be headed right for all of the oil rigs and refineries along the Gulf Coast.

After rising for two days on concern over Gustav, oil prices fell by $2.50 a barrel on Thursday. But there is widespread concern about what could happen at the pump.

We see how people in the path of Gustav are bracing for potentially destructive winds and damage to property.

Gulf oil facilities are just as vulnerable. Oil rigs and platforms are engineered to sway with hurricane intensity winds and waves.

Damage can be repaired in a matter of weeks once evacuated crews return.

But consumers would be hit, too. Half of the country's refining capacity is in the Gulf of Mexico, and a quarter of that capacity was knocked out after hurricanes Rita and Katrina.

"That caused the gasoline price to go up 25 percent. If the gasoline price went up 25 percent, it would be $1 per gallon increase in the gasoline price," said Stanford University energy analyst James Sweeney, Ph.D.

Professor Sweeney is Director of the Precourt Institute for Energy Efficiency at Stanford.

He points out that the Gulf region is a dense concentration of more than 800 oil and natural gas platforms with critical pipelines that link them to dozens of Gulf shore refineries.

The refineries are vulnerable if they're flooded, which happened during Katrina.

"Do we get flooding that floods out the refineries again? That will be devastating. Do we just have winds and then both the refineries and the offshore platforms can probably be brought back within a space of several weeks," said Sweeney.

That kind of uncertainty will make oil prices volatile over the next few days.

An interruption in oil production might also prompt the president to tap into the country's strategic petroleum reserve.

Gustav could also create some political turmoil for John McCain. The storm is striking as the Republican Convention gets underway.

"They feel like they've been in the shadow of Barack Obama, and now to have this storm come in and cause them to be in the shadow again is going to be a real problem for them," said ABC7 political analyst Bruce Cain, Ph.D.

Gustav is destined to push gas prices higher.


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