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White House moves to prevent run on petrol supplies
By Sheila McNulty in Tucson
Published: September 28 2005 19:18 | Last updated: September 28 2005 23:46

President George W. Bush's call for the US public to conserve energy is
aimed at preventing a run on petrol at a time when the US is precariously
short of it.

Energy companies have been trucking fuel in from various parts of the US
to restock pumps that ran dry in Texas, following two hurricanes that
struck the heart of the nation's energy infrastructure and a massive
evacuation that cut into much-needed supplies. This has stretched already
tight national petrol supplies.

"The president's best bet for the next two weeks is to try to see if he
can get Americans to stop doing discretionary driving without creating
panic," said Amy Myers Jaffe, research fellow at the James A Baker III
Institute for Public Policy. "He's in a very challenging position."

The US petrol market lost close to 80m gallons of petrol in the evacuation
of about 3m people from Houston ahead of Hurricane Rita. Although Houston
was not hit, forecasters had projected that the fourth-biggest US city
would be in the eye of what was then a Category 5 hurricane. That boosted
regional demand 4-5 times higher than normal as residents fled, Baker
Institute research shows.

In the end, Hurricane Rita released its fury on the Gulf of Mexico
drilling area, damaging more offshore rigs than any storm ever, before
hitting four refineries on the Texas/Louisiana border.

While damage to rigs, which drill for oil, will drive up future fuel
prices, the damage to refineries on top of the run on petrol in the
evacuation is likely to have an immediate impact at a time when Americans
already are seeing petrol for $3 per gallon at the pump.

"The storms and the resulting price rises have created a sense of anger
with consumers and urgency with politicians," said Robin West, chairman of
PFC Energy, the consultancy. Congressmen say constituents are more
concerned by rising fuel prices than the war in Iraq or the president's
handling of Hurricane Katrina. And analysts fear prices for many fuels are
set to climb higher.

The storm cost the US about 5 per cent of US refining capacity, even as
another 5 per cent remained offline following Hurricane Katrina. Perhaps
more importantly in the short term, however, is the immediate burden
placed on the system by last week's massive evacuation of Texas and

It pushed national consumption of petrol to about 6 per cent more than for
the week of Labor day, which is considered peak driving time in the US,
according to the Baker Institute. That was about 20 per cent higher than
normal for this time of year.

Researchers say continued heightened demand will put additional strains on
the US petrol distribution system, which was tight even before hurricane
season began, with refineries running as close to full capacity as
possible. The nation has no refined stores, so the loss of petrol from the
evacuation alone could result in higher retail prices.

Kenneth B Medlock III, an economics lecturer at Rice University, said
consumer inclinations to keep petrol tanks full can aggravate the
situation. He notes even price caps in the 1970s failed to discourage
consumers from filling up tanks and left many without needed fuel.

Public commitment to voluntary adjustments to habits and practices is the
best short-term solution, Ms Jaffe said. Not only would that prevent
another run on petrol stocks but also gain credibility with Europe, as the
US asks for emergency refined product relief.

"We cannot just ask for more fuel and let other countries bear the brunt
of changed use patterns," Ms Jaffe said.

Yet refiners have for years resisted taking on the expense of storing
stocks, and conservation is politically delicate.

"Telling Americans not to get in their cars is like telling Americans not
to eat apple pie," she notes.

That is why Ms Jaffe and others say that President Bush and the big oil
and petrol companies in recent advertisements are soft-pedalling on the
call to cut discretionary driving. Mr Bush has simply encouraged
car-pooling and reducing unnecessary trips.

The need for the public to conserve could not come at a more delicate time.

Bob Linden of PA Consulting noted that heating oil is going to come into
the limelight in coming days, when people begin ordering fuel oil for
winter. Refineries that normally would be building inventories of fuel oil
have been instead replenishing petrol supplies lost in the hurricanes and
the evacuation. That has set the stage for reduced supplies of heating oil
that will drive up prices as winter approaches.

"This is peak filling time," Mr Linden said. "The trend is going to be
apparent that fuel oil inventories are going down."
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