Editorial: Adding Insult to Fuel-Price Injury

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ust when many of us thought that fuel prices couldn’t get much worse, Hurricane Katrina proved us very wrong.

In addition to the horrendous toll the storm took on life and property along the Gulf Coast, Katrina wreaked havoc on the region that is the heart of the domestic oil-producing sector, damaging and uprooting oil platforms, smashing port facilities and flooding refineries.

Add to this the severe damage inflicted on the area’s roads, and the picture is pretty bleak — and it could be for some time to come.

U.S. fuel prices were already at all-time record highs before the storm came ashore near the Louisiana-Mississippi border on Aug. 29. The national average retail price for diesel hit $2.59 a gallon in the Department of Energy’s latest report, rising 0.2 cent from the previous week. The gasoline average price fell 0.2 cent in the same period, to $2.61 a gallon, from the previous week’s record high.

But it appears that the worst is yet to come. According to DOE officials, the hurricane damage is likely to add 25 cents to 50 cents a gallon to the retail cost of diesel fuel within a week, which would bring the average price into the $3 range.

As Katrina subsided, crude oil futures traded as high as $70.85 a barrel, uncharted territory for oil prices, before settling down at just under $70.

On Aug. 31, the White House announced it would tap into the nation’s Strategic Petroleum Reserve, raising hope that it would bring oil prices down a bit. But energy analysts warned that the effect of the reserve’s release would likely be severely limited by the fact that there is nowhere to refine the additional crude into gasoline and diesel, as most of the undamaged refineries in the nation are already operating at full capacity.

Given the scope of the damage, there is little reason to expect any meaningful price relief in the near future.

The unprecedented cost of fuel is surely dampening economic activity in the United States. American Trucking Associations has already lowered its forecast for freight tonnage for the year, citing traffic declines. (Click here for story.)

Freightliner said it was laying off production workers at its medium-duty factory in North Carolina. (Click here for story.)

It appears that Washington’s failure to tackle rising fuel prices over the past year is coming home to roost, helped along by Mother Nature. And things are nearly guaranteed to get worse long before they get better.

This editorial appears in the Sept. 5 print edition of Transport Topics. Subscribe today.