Oil Back at Pre-Storm Levels

Crude oil prices fell below pre-Katrina levels Tuesday and wholesale gasoline prices also tumbled again as the Gulf Coast energy industry continued to crawl back from the hurricane’s devastation.

But retail gas prices eased only slightly from their record highs in California and nationwide, and analysts cautioned motorists not to expect quick or sizable declines in pump prices that were now above $3 a gallon across much of the country.

Indeed, the average price for self-serve regular in the Los Angeles area inched higher to a record $2.999 a gallon from $2.996 on Monday, according to AAA.

Despite some initial progress, much of the Gulf Coast’s massive energy industry -- which accounts for more than one-quarter of U.S. oil production -- remained knocked out, analysts noted.

“The good news is some of these refineries are beginning to percolate again,” as electricity is restored, floodwaters recede and oil workers begin making repairs, said Fadel Gheit, an Oppenheimer & Co. analyst. “But to bring them back to pre-Katrina levels is going to take months.”

Still, the lower prices on commodities markets signaled that traders believe the worst might be over in the Gulf Coast, barring another major storm or other shock to the region.

About 90% of the gulf’s oil-production capacity survived Katrina and “could return to the market in one month” if the refineries, pipelines and other onshore infrastructure are running properly, Rebecca Watson, an assistant secretary at the Interior Department, told the Senate Energy and Natural Resources Committee on Tuesday.

Oil prices began falling Friday after the 26-nation International Energy Agency agreed to sell 60 million barrels of oil and gasoline to the U.S. market over the next month to help cover shortages from the gulf. The Bush administration also said it would sell 30 million barrels of oil from the U.S. Strategic Petroleum Reserve.

On Tuesday, the U.S. benchmark grade of light crude oil for October delivery dropped $1.61 to $65.96 a barrel on the New York Mercantile Exchange. On Aug. 26 -- three days before Katrina hit the Gulf Coast -- the near-term contract for oil had closed at $66.13 a barrel.

Gasoline for October delivery skidded 12.87 cents to $2.055 a gallon on the Nymex. And on California’s unregulated spot market, where refiners and others can buy last-minute fuel supplies, gasoline traded for about $2.383 a gallon, down almost 27 cents from a peak of nearly $2.65 on Aug. 31, according to Oil Price Information Service, an energy research firm.

In response, the national average pump price slipped to $3.041 a gallon Tuesday from $3.057 on Monday, which eclipsed even the inflation-adjusted record set in 1981, AAA reported, based on an electronic survey of gasoline stations. California’s average edged down to $3.049 a gallon from $3.050.

Doug Leggate, an analyst with Citigroup Global Markets, said prices would drop from their “celestial levels” as more refining capacity came back on line.

“We do not expect wholesale prices and refining [profit] margins to remain anywhere near current levels,” he said in a report to clients.

The Energy Department also predicted that prices would decline if the Gulf Coast recovered as expected, but would stay far above anything anyone had anticipated before the storm. Gasoline should average $2.60 a gallon nationwide in the third quarter and $2.40 a gallon in 2006, the department’s Energy Information Administration said at the Senate hearing Tuesday.

There is still a gaping hole in the region’s oil and gas production, which has raised fears of shortages beyond the spot outages reported around the country over the Labor Day weekend.

About 58% of the Gulf Coast’s oil production and 41.6% of its natural gas output remained shut down Tuesday, with 192 platforms and 27 drilling rigs still evacuated, the U.S. Minerals Management Service reported.

The disruption occurred when U.S. gasoline supplies were low and struggling to keep pace with rising demand from motorists, airlines and other industrial users of fuel, which had already lifted prices to near-record levels.

With the addition of Katrina’s damage, it’s “unlikely that we are going to see any imminent meaningful relief in terms of gasoline prices for at least the next couple of months,” David Rosenberg, an economist at Merrill Lynch & Co., wrote in a report Tuesday.

Confirming what motorists already knew, the Energy Information Administration’s weekly gas-price survey showed that the nationwide average pump price for regular soared 45.9 cents in the week ended Monday to a record $3.069 a gallon.

California gas prices are often the highest in the nation, mainly because of the state’s stringent air-quality standards for fuel. But in the aftermath of Katrina, California lost that dubious title, falling well behind several states in the eastern half of the nation.

The recovery from the hurricane proceeded unevenly as energy companies struggled to salvage their Gulf Coast facilities.

Shell Oil Co.’s Capline pipeline system was operating Tuesday at 40,000 barrels an hour, just below the normal rate of 45,000 barrels an hour, said spokeswoman Darci Sinclair.

And its Motiva refinery in Convent, La., which processes 235,000 barrels of crude a day, started up Monday although “the plant will be brought up gradually and safely toward full production over several days,” she said.

Kevin Fitzgerald of Murphy Oil Corp. said one of the company’s two deep-water platforms started up early Tuesday, while the second was still being evaluated by engineers.

In New Orleans, Murphy workers were trying to gain access to the company’s refinery, which has a production capacity of 125,000 barrels a day. Like the rest of the city, the facility is without power.

“The processing units are in a dry area, but there’s water around the surrounding areas,” Fitzgerald said. “We’re sending materials and people by river. It’s safe to say the refinery will be down a couple of months.”

Valero Energy Corp. reported that its St. Charles, La., refinery remained down. The company hoped to start the 185,000-barrel-a-day plant again this week.

The Energy Department said Monday that the hurricane inflicted major damage on ConocoPhillips’ refinery in Belle Chasse, La., which is capable of processing 247,000 barrels of oil daily, and caused some water damage at Exxon Mobil Corp.’s 187,000-barrel-a-day refinery in Chalmette, La. Chevron Corp.’s 325,000-barrel Pascagoula, Miss., refinery was still being assessed.

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High and low

The five highest and five lowest average prices for a gallon of self-serve regular gasoline Tuesday, plus the averages for California and the nation, in a survey of the states and Washington, D.C.

Washington D.C.: $3.35

Maryland: $3.27

New York: $3.25

Delaware: $3.22

Rhode Island: $3.21

California: $3.05

U.S. average: $3.04

Utah: $2.90

Oregon: $2.89

Alaska: $2.75

Mississippi: $2.75

Louisiana: $2.74

Source: AAA

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Times staff writer Peltz reported from Los Angeles and correspondent Calvo reported from Houston. Times staff writer Richard Simon contributed from Washington.