Gasoline prices spike as Irene nears

Retail gasoline prices in the New York area rose sharply Friday, as Hurricane Irene threatened to roll over the city on Sunday.

Price tracking website GasBuddy.com showed many areas of the city, Long Island and Connecticut where gasoline was selling for more than $3.90 US a gallon, 30 cents higher than the national average.

Consumers were filling up as reports suggested refineries along the U.S. east coast will likely close. There are 10 refineries in the area that could be affected, responsible for more than seven per cent of total U.S. capacity.

Gasoline futures climbed on the New York Mercantile Exchange yesterday, closing with a gain of 4.59 cents, or 1.6 per cent, to end at $2.80 US a gallon.

With no companies announcing any closures, gasoline had given back some of that gain Friday, to close at $2.78.

The National Hurricane Center downgraded Irene to a Category 2 storm Friday morning and by 2 p.m. ET reported that its maximum winds had decreased to 155 km/h as it came within 500 kilometers of Cape Hatteras. It is forecast to affect a broad area, from North Carolina to Eastern Canada, with flooding and winds as high as 190 km/h.

Traders on the Nymex, shown in March, pushed gasoline futures higher by almost two per cent on Thursday. Mark Lennihan/Associated Press

Some forecasters think Irene could be the worst hurricane to hit the U.S. Northeast in 50 years.

Refineries are already starting to turn off equipment and tie things down.

"Even if the storm eventually misses them, they can't take chances," says Ben Brockwell at the Oil Price Information Service, which monitors fuel shipments around the country.

Refineries are sprawling complexes of concrete and steel that turn oil into gasoline, diesel and other kinds of fuels. While the main buildings are designed to withstand hurricane-force winds and earthquakes, some of their pipes, cooling towers and power lines are susceptible to wind damage.

Utilities are expecting widespread power outages from winds and downed trees.

It takes several days for a refinery to start operating again following a shutdown. And many would need almost a month to get back to full operation.

Tom Bentz, an analyst at BNP Paribas Commodity Futures, said traders are betting that supplies may be squeezed.

"There's the potential for certainly coastal flooding, potential for refinery outages, potential for shipping delays, things like that," Bentz says.

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$3 billion damage bill as Irene heads east

Officials are still calculating the full impact of hurricane Irene, but early indications suggest that the storm's financial toll is not as bad as initially anticipated.

Estimates for what the storm might cost in financial terms were as high as $14 billion (all figures US dollars). But after making its way through the Caribbean and parts of the Carolinas, the storm had weakened significantly by the time it hit populous New York State.

Risk-modelling firm AIR Worldwide said the storm caused somewhere between $500 million and $1.1 billion worth of insured losses in the Caribbean, before heading northeast to the Carolinas, where California-based Eqecat estimated over the weekend that damage ranged between $200 and $400 million.

"It was certainly a major event, but it could have been much worse," Eqecat vice-president Tom Larsen told Bloomberg.

Residents walk along Hwy 12 in North Carolina, surveying Irene's damage. Jose Luis Magana/Reuters

Kinetic Analysis Corp. estimated the total damage bill to U.S. insurers was as low as $2.6 billion as the storm moved east into Atlantic Canada.

"The industry is expecting a total cost of somewhere between $3 and $5 billion in terms of privately insurance losses," Robert Hartwig, the president of the Insurance Information Institute told Bloomberg in a television interview Monday morning.

Tens of thousands of individual claims between the Carolinas and Maine are expected.

The year 2011 is shaping up as the 7th most expensive year in U.S. history for losses due to natural disasters, Hartwig said. U.S. insurers have already paid out roughly $35 billion in disaster-related claims this year.

More than two million people were ordered to evacuate in advance of Hurricane Irene's arrival on the U.S. East Coast —about 1.5 million of them in the New York and New Jersey areas. In addition to sporadic damage to individual homes and businesses, the storm has knocked out power to 3 million people along the Eastern Seaboard already.

And more than 10,000 flights were cancelled up and down the east coast of North America.

U.S. stocks rose Monday Irene wound up being less severe than many analysts anticipated. The lower damage estimates pushed insurance stocks higher.

Allstate Corp. rose 6.8 per cent, Hartford Financial Services Group Inc. rose 6.7 per cent, while Travelers Cos. Inc. rose 4.6 per cent.

The damage figures being quoted by the insurance industry do not cover the full impact of the storm's damage, because not all of it will be covered by private insurance. The cost of cleaning up public infrastructure is likely to be shouldered by governments, not insurers.

The Federal Emergency Management Agency is the government body that deals with natural disasters on the continental U.S. A program there allows states to be reimbursed as much as three-quarters of what they spend rebuilding by federal funds from FEMA.

That ratio can change ifan area is declared to be in a state of emergency. So far, few areas have been so-named, but that may change.

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