Wholesale Gasoline Hits $3

Wholesale gasoline prices on the Gulf Coast broke $3 a gallon Tuesday — far higher than prices at most U.S. pumps — as major refineries remained shut after Hurricane Katrina (search), trading sources said.

This could spell a huge spike in retail prices for drivers throughout the United States in the coming days and in particular those in the Southeast, where prices are typically the lowest in the country.

"This in many ways is the worst-case scenario that the oil industry has been fearing," said Geoff Sundstrom, spokesman for the AAA (search) motorist group. "Production, distribution, and refining has slowed to a crawl through the whole area and that will mean higher gasoline prices throughout the entire United States."

"We would hope that the high wholesale prices we're seeing today are a momentary overreaction to the current situation. It's hard to say whether retail prices will move up by a like amount, but if they do, U.S. drivers will be paying $3 a gallon," he said.

The spike in wholesale prices from below $2 last Friday came after Hurricane Katrina plowed through the Gulf of Mexico and made landfall near New Orleans, forcing shut at least eight refineries in Louisiana and Mississippi and slowing production from two others.

The shut refineries and plants with reduced production account for about 15 percent of U.S. refinery production.

Tuesday, a gallon of gasoline traded in the Houston-based Gulf Coast physical marketing hub (search) cost about $3.15 a gallon — sharply higher than the national average retail price of about $2.60 a gallon.

Traders were reluctant to guess how high the wholesale spike will make prices at the pump but some say it's safe to bet that the price of a gallon of regular self-service gasoline in the United States will top $3 per gallon by next week.

"Retail prices are going to vary among regions but for all practical purposes $3 is a floor," said private oil analyst Jim Ritterbusch.

The spike could spread across other regions of the United States due to the shutdown of two fuel pipelines from the Gulf Coast to the Northeast, including the massive Colonial Pipeline (search).

"This tightness of supply in the Gulf Coast is going to spread," said Ritterbusch, of Galena, Illinois. He said the shutdown of a major fuel pipeline from the Gulf Coast to the Northeast could push prices up in other regions.

"This thing has tentacles that are going to stretch all over the place," Ritterbusch said.

The Colonial Pipeline carries about 1.3 million barrels per day of gasoline and distillates from the refining hub of Houston along the Gulf Coast through Atlanta, Greensboro, North Carolina, the Washington, D.C., area and terminates at the New York Harbor.

In addition to the refinery shutdowns, about 92 percent of Gulf of Mexico crude oil production was shut Monday as a result of Katrina, the U.S. Minerals Management Service said, triggering worries that refiners may not have adequate feedstock when they restart.

Citgo Petroleum, a subsidiary of Venezuela's PDVSA, said on Monday it formally requested oil from the U.S. emergency stockpile to keep its refinery in Lake Charles, Louisiana, operating.

A switch to easier-to-produce autumn grade gasoline later this week is expected to bring prices lower, some dealers said.