Oil prices jump, Canadians pay at the pumps

By Editing Staff
September 22, 2005
Crude oil prices are expected to jump back to US$68 a barrel after reaching the all-time high US$70.85 on Aug 30, in fear of the landing of Hurricane Rita along the US Gulf Coast in Texas, whose the key US oil production facilities were largely untouched by the catastrophic hurricane Katrina's onslaught three weeks ago.

Rita was upgraded to a Category 5 storm yesterday. The storm, packing winds of nearly 175 mph, was about 570 miles east-southeast of Galveston and moving west at about 9mph, with hurricane force winds extending up to 70 miles from the center, according to the National Hurricane Center. The storm, currently, is the third-most intense hurricane ever recorded in the Atlantic, just behind Gilbert in 1988 and the 1935 Labour Day hurricane.

Texas, where the storm is expected to hit, is home to the biggest concentration of US oil refineries, accounting for 26 percent of the nation's total capacity. After Katrina made its landfall in Louisiana last month, the four refineries in Mississippi and Louisiana, damaged, were shut down, crippling 5 percent of the US capacity. The oil capacity in Texas, which is significantly larger than the states affected by Katrina, would have an effect on the oil market as catastrophic as the storm itself, if the refineries are heavily damaged. And it may stand a good chance doing so, given that the some of the refineries in Texas are at sea level and could flood easily.

The National Weather Service has issued a flood watch for the Texas coastline, including Galveston, where the nation's largest oil refinery belonging to Exxon Mobil Corp is located.

Plants are already slowing or shutting down as Rita continues to advance. Shell Oil yesterday began shutting down its seventh-largest refinery in Deer Park, Texas, yesterday, which will be complete by late Thursday morning and there is no date set for resuming production.

Conoco Philips is shutting its Old Ocean, Texas, refinery. BP is pulling some workets from its Texas refinery and shutting parts of the fourth largest plants in US.

Valero, the largest US refiner, said it is closing its plants in Texas City and Houston, with the shutdown to be completed by midday Thursday.

The Organization of Petroleum Exporting Countries agreed at its meeting in Vienna two days ago to effectively suspend its quota system for the first time since 1990 Gulf war to relieve the rising oil price by pumping an estimated addional 2 million barrels of oil a day which will begin at Oct 1 and last for 3 months.

However, Taxes also make up a large part of the oil price. According to OPEC, 62 percent of fuel prices in UK and 24 percent in US of the oil price are taxes. Consuming countries have a responsibility to lower taxes if they want lower fuel price, OPEC president Sheikh Ahmad Fahd al-Sabah, also the Oil minister of Kuwait, said.

Meanwhile, Canadian gas prices are ever-soaring where one can expect to pay over $1.10 per litre. One Ontario town saw their price hit $1.79 during the day on Wednesday. Edmonton is paying a bit lower at just over $1.05 per litre.

Canada isn't alone. Gasoline prices have been jumping across North America due to an apparant lack of refinery capacity, which the energy corporations blame on recent natural disasters in the U.S.


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