Oil Struggles, Gasoline Surges

Some of Reserve Released; Refinery Problems Remain

The Bush administration moved yesterday to release at least 1 million barrels of oil from the nation's strategic reserve, an announcement that blunted the rise in oil prices in the wake of Hurricane Katrina but did little to slow surging gasoline prices.

Federal authorities and energy companies rushed to get emergency generators to the Gulf Coast to resume pumping gasoline through the two main arteries that feed the Eastern Seaboard. And the nation's largest oil import terminal, the Louisiana Offshore Oil Port, announced that it was able to begin pumping oil from foreign supertankers last night, the first glimmer of good news from the Gulf of Mexico.

But analysts warned that a rush of demand from consumers hoping to fill their gas tanks would be enough to trigger gasoline shortages in the coming days and drive prices sharply higher.

"It's the biggest nightmare I could ever imagine," said Peter C. Beutel, an energy consultant and president of Cameron Hanover Inc. in New Canaan, Conn. "It's out of control."

The announced release from the 700-million barrel Strategic Petroleum Reserve calmed speculators, who had been bidding up the price of oil beyond the level warranted by the crisis, analysts said. Light sweet crude on the New York Mercantile Exchange fell 87 cents, to $68.94 a barrel, down from an overnight high of $70.65. That fall was also aided by the prospects of renewed shipments of crude imports from the offshore oil port to onshore refineries.

But those developments had no impact on gasoline futures, which rose 14 cents, to $2.6145 a gallon, on the Nymex. That is 35 percent higher than they were on Friday. The average national price of a gallon of regular gasoline rose 1.5 cents to $2.619, according to the AAA automotive club. That price, when adjusted for inflation, is still below the high set in the early 1980s.

No matter how much crude oil can be brought on shore, the real problem lies with refining it into gasoline and shipping it to filling stations, said Fadel Gheit, an oil and gas analyst at Oppenheimer & Co.

The two main gasoline pipelines from the Gulf to the East Coast -- Plantation, which terminates near Reagan National Airport, and Colonial, which ends in New Jersey -- remain mostly idle, as they await electricity to run pumps. Plantation's operator, Kinder Morgan LP, said last night that it had restored 25 percent of the pipeline's daily capacity, equal to about 150,000 barrels.

Eight major refineries are still shut down, squeezing U.S. refining capacity by 10 percent. Those outages have cut production of refined gasoline by 1 million barrels a day, Gheit said, "by far the largest drop of gasoline that I know in memory." Supplies of jet fuel and heating oil are also tight.

The Metropolitan Washington Airports Authority denied a trade report yesterday that said Dulles International Airport was one of 10 that could face jet fuel shortages. Dulles and National are supplied by the Colonial and Plantation pipelines, and they have a two-week supply of fuel on hand, the authority said.

The infusion of crude oil "had a calming effect, but the problem is, it's the wrong medicine, and the market is already telling us that," Gheit said.

Supplies of refined gasoline were already tight before Katrina, as demand from China and other parts of the world squeezed capacity. Anxiety is running high that supplies will get worse before they get better.