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Saturday, September 3, 2005 - Page updated at 12:00 AM

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Europe pact improves oil outlook, but supply problems are lingering

The Associated Press

The post-Hurricane Katrina petroleum-supply outlook improved somewhat yesterday as U.S. and European governments agreed to release 2 million barrels a day of oil and refined products from their reserves.

The announcement by the International Energy Agency (IEA) was made after futures markets had closed. But prices fell on reports that it was coming and as pipelines that distribute oil and gasoline from the Gulf Coast returned to high levels of service.

Still, the immediately available supply of energy for automobiles, homes and airlines in East Coast and Midwest markets tightened. About 1.8 million barrels a day of U.S. refining capacity remained shut down, and it will be weeks before the extra gasoline from Europe arrives.

Pump prices exceeded $3 a gallon in many places, and motorists have been urged to conserve fuel by everyone from President Bush to Exxon Mobil.

Jeff Miller, who owns 50 gasoline stations across southeastern Virginia, said it will be a real challenge over the Labor Day holiday weekend to prevent pumps from running dry from time to time.

"Every morning, I'm sitting down, figuring out which stations have product and which don't, then dropping off loads to keep at least some gas at all of them," Miller said. Four of his stations were empty yesterday, and demand was holding steady at the others despite prices averaging $3.10 a gallon.

Part of the difficulty, Miller said, is that suppliers such as BP and Royal Dutch Shell have been rationing the fuel they will sell to Miller and other gasoline retailers to ensure overall availability in as many markets as possible. However, there is also a major benefit in having a supply relationship with a major oil company:

"They have kept their prices lower than the unbranded suppliers," he said.

Washington Attorney General Rob McKenna, meanwhile, joined about 40 other attorneys general yesterday in launching an inquiry into the cause of escalating gas prices linked to Hurricane Katrina.

"We have seen no evidence that Washington gas producers or retailers are violating state consumer-protection or anti-trust laws," McKenna said in a written statement, "but [our] office will continue to monitor the situation."

In Washington, gas prices rose 4 cents in 24 hours to a statewide average of $2.82 a gallon yesterday. That's 5 cents a gallon below the national average. The average price of gas in Seattle matched the state average.

Joe Sparano, president of the Western States Petroleum Association, said nearly 10 percent of U.S. refining capacity has been lost because of the hurricane and no one knows when it will be back in operation.

"Because prices are driven on the wholesale market by expectation, as they are on the stock market, we're seeing the prices move," Sparano said.

The IEA agreement will put more than 60 million barrels of oil equivalent on the market in the next month, with the U.S. government's portion amounting to at least 30 million barrels of crude oil from its strategic reserve.

But the market was most upbeat about the announcement from the 26-nation IEA because it will bring gasoline and diesel from Europe to the U.S. market.

Light sweet crude for October delivery fell $1.90 to $67.57 a barrel on the New York Mercantile Exchange. Gasoline futures tumbled nearly 23 cents to $2.18 a gallon, their first dip this week.

Another bright spot yesterday was the increasing amount of fuel being delivered from the Gulf Coast by the Colonial and Plantation pipelines, which combined were shipping almost 2 million barrels a day of gasoline, diesel and jet fuel to the East Coast. The Capline pipeline, which carries crude oil from the Gulf Coast to Midwest refiners, was shipping about 750,000 barrels a day.

"We've had some good signs; we'll just keep working at it," said John Felmy of the American Petroleum Institute, a Washington-based trade group representing the major oil companies.

"We're still calling on consumers to be prudent in their use of gasoline. It's just a complicated jigsaw puzzle we're putting back together."

Seattle Times reporter Vanessa Renée Casavant contributed to this report.

Copyright © 2005 The Seattle Times Company

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