Approaching Empty?

Hurricane Katrina's assault on the Gulf Coast has jacked up gasoline prices throughout the country.

But, reports CBS News Correspondent John Blackstone on CBS News Sunday Morning, rising prices all summer can be traced to something deeper: the first rule of economics: supply and demand.

Is the world in danger of running out of oil?

Katrina's hit on oil platforms and refineries in the Gulf of Mexico will hit Americans in the wallet for a long time to come. The Department of Energy says $3-a-gallon gasoline is likely to be the rule until close to the end of the year.

And as winter approaches, Blackstone says, the news gets worse. Those heating their homes with natural gas can expect an increase of more than 70 percent over last year; heating oil will be up 30 percent.

With supplies of oil and gas already tight, Blackstone observes, Katrina made a bad situation downright awful.

"If you lose a refinery, or if you lose a couple of days of oil production, it can't be replaced. It's like it's gone forever," observes Phil Flynn, an oil analyst and trader for Alaron Options and Futures, in Chicago.

He's one of those who helps determine whether the price of oil goes up or goes down, Blackstone points out.

"So when (crude) prices go up … then they end up going up at the pump?" Blackstone asks.

"They sure do!" Flynn confirms.

Flynn and other oil traders help set the price we pay at the pump by bidding to buy barrels of oil at a date in the future.

Flynn may consult with others, Blackstone notes, but his constant partner is fear: The fear of losing any oil, whatever the reason, can send the price of oil skyrocketing.

As Flynn puts it, "If I see a storm barreling down on 'Refinery Row "in the Gulf of Mexico, I'd be foolish not to be worried about that."

But, Blackstone says, as bad as it is, Katrina is a short-to-medium-term worry. Long before the hurricane hit, prices were rising, partly because of concern the demand for oil around the world is getting desperately close to outstripping supply.

"We're talking about competition between the major consuming countries of today and the consuming countries of tomorrow," Flynn says. "When you think it was just a few years ago that China was exporting oil and, when nobody was paying any attention, all of a sudden they're now the No. 2 importer in the world."

In 2000, China used less than 5 million barrels a day, Blackstone says. Now that figure is 6.6 million barrels. China's flourishing economy is built on oil.

"And what's scary about this," Flynn adds, "is that we may have only scratched the surface of their potential demand growth in the future."

But, Blackstone points out, the United States remains by far the world's largest user of oil, consuming more than 20 million barrels a day. That's nearly a quarter of all the oil produced on earth. And while the U.S. is using more oil than ever, American oil wells are producing less, only 5 million barrels a day, approaching 50-year lows.

We import more than 13-million barrels a day and, with that growing competition from other countries there is barely enough oil to go around.

"It's very difficult to bring new sources of production into the market on a very quick basis," says Ed Murphy, a director of the American Petroleum Institute in Washington.

He says soaring gasoline prices are simply a result of the law of supply and demand: "There is some extra capacity. There's a very small amount. It's almost entirely in Saudi Arabia. The other countries are producing to the fullest extent possible. So there is no extra capacity, really, outside of Saudi Arabia at this point."

That squeeze on supplies, Blackstone observes, has driven up gasoline prices with shocking speed. In some places, Katrina briefly pushed a gallon of gas into uncharted territory.