Ike toll on U.S. refineries lighter than feared; gasoline price burden stays heavy

The storm made landfall Saturday morning on the Texas coast, home to about a fifth of U.S. refining operations. Many facilities there had already been shuttered because of hurricane Gustav two weeks earlier.

The day before Ike hit, fear of further gasoline supply disruptions sent pump prices soaring as much as 13 cents in some parts of Canada. They continued to rise Monday, with the national average topping $1.42, Gasbuddy.com said.

Liberal MP and gas price watcher Dan McTeague said motorists will see some relief at the pumps Tuesday.

He said the price of a litre of gasoline will drop by between six and nine cents at midnight Monday.

Early surveys of Ike's aftermath suggest there was no major damage to energy-industry infrastructure, said Royal Bank of Canada analyst Scott Hanold.

That means Canadian drivers can hope to feel some relief but not immediately, he said.

"Even though you have some things coming online doesn't mean these things are going to be operating at full capacity because there's still a broader power issue and probably some local flooding issue in those areas," he said.

A lot of refinery personnel left town ahead of the storm, so it could also be a while before they go back to work, Hanold added.

"I think you could see that type of pricing to be sustained over a period of a week or so until people get more clarity on the exact timing of the return of some of these facilities," he said.

Last week's price spike was tied to the wholesale price of gasoline, which was driven up by traders and other market players who had been buying up supplies in anticipation of a major shortage.

Since gasoline is traded freely across the Canada-U.S. border and Canada is a net importer or refined gasoline, the prices Canadian fuel retailers pay are closely tied to U.S. prices.

"As soon as the market knew that supply was cut off and that things would be even tighter, prices go up. Simple economics," said Peter Linder, president of Delta One Capital.

"When gasoline supply becomes a little more abundant, we're going to see the price of gasoline come down. Not until then."

Factors other than hurricanes Gustav and Ike played into the supply picture for gasoline, Linder said.

Gasoline demand fell off this year as a result of the high prices, which led refiners to scale back their production. Inventories for gasoline were at eight-year lows before the storms hit, Linder said.

In addition, Petro-Canada (TSX:PCA), Shell Canada Ltd. and Imperial Oil Ltd. (TSX:IMO) all had refinery upsets in Alberta at various points this year, which led to shortages across much of Western Canada.

Less than half of the retail price of gasoline comes from the cost of its raw product, crude oil.

Light, sweet crude for October delivery fell $5.47 to settle at $95.71 a barrel on the New York Mercantile Exchange - oil's first settlement under $100 since March 4 and a steep decline from its all-time record above $147 set in July.

Many consumers have been perplexed as to why that significant downturn has not translated at the pumps, prompting accusations of price gouging by the industry.

Linder said gasoline and crude oil are two different commodities that are bought and sold for different reasons in the marketplace.

"Gasoline is a commodity. Crude oil is a commodity. Just because you make it from crude oil, doesn't mean it goes in tandem up and down," Linder said.

University of Alberta economics professor Joseph Doucet said it is difficult to pinpoint one precise reason for high gas prices.

The cost of crude oil is one part of the equation, but its effects on gasoline at the retail level tend to be delayed by months, he said.

Rivalry between retailers over pricing in certain markets also plays a role, he said.

"All of those factors are the underlying components of the competitive landscape of gasoline pricing," Doucet said.