Oil prices to fall on reduced fuel demand but Democrats still proposing creating gasoline stockpile

Crude oil may fell as the highest gasoline prices since 1981 lead consumers to reduce fuel purchases, a Bloomberg survey showed.

Twenty of 54 analysts and strategists surveyed, or 37 percent, said oil will fall next week. Nineteen, or 35 percent, said prices would rise and 15 forecast little change.

U.S. gasoline demand averaged 8.8 million barrels a day during the past four weeks, 2.8 percent below the same period a year earlier, according to an Energy Department report on Sept. 28. Gasoline pump prices rose to a record this month after Hurricane Katrina damaged refineries and shut production platforms along the Gulf of Mexico.

“Demand for gasoline and diesel is eroding because of high prices,” said Joseph Allman, an analyst at RBC Capital Markets in Houston. “By mid-October we should be able to focus on other fundamentals, not just Katrina and Rita. Supplies are OK and more is coming on line.”

Crude oil jumped 4.1 percent to $66.79 a barrel on the New York Mercantile Exchange during the first four days of trading this week. Prices rose after Hurricane Rita shut production platforms in the Gulf of Mexico and refineries in Texas and Louisiana. Rita made landfall on Sept. 24.

Futures rose to a record $70.85 on Aug. 30, the day after Katrina reached the coast of Louisiana and Mississippi. Four refineries damaged by Katrina remain shut, reports Bloomberg.

The current U.S. stockpile "puts crude oil in the hands of refiners who can't refine it quickly enough to help the market," Dick Durbin Senator from Illinois said.

A dozen refineries remain shut after Hurricane Rita and last month's Hurricane Katrina, eliminating the production of more than 3 million barrels per day of fuel and raising the danger of shortages of gasoline and heating oil heading into the winter.

Under the Democrats' plan, the fuel reserve would be placed in three to five "strategically significant" sites chosen by the Energy Department and begin operating two years after the plan is enacted.

The U.S. president would decide when to release the emergency fuel supplies, and would have to consider requests from state governors.

Unlike crude oil, gasoline has a limited shelf life and cannot be stored indefinitely.

That makes for logistical problems, as supplies must be refreshed periodically, which would mean that gasoline and jet fuel would have to be swapped or sold out of any reserve.

The need to turn over a gasoline inventory raises concerns that the U.S. government could affect gasoline markets when it has to sell aging supplies, said Rep. Joe Barton of Texas, chairman of the House Energy Committee, informs Reuters.