Soaring gas prices in the wake of Hurricane Rita, and rumours of the worst yet to come, caused long line-ups at gas stations across Canada Thursday over fears that major Texas oil refineries will be shut down.

Drivers in Chatham, Ont., flocked to the pumps to fill up after one station raised prices to nearly $1.75 for a litre of regular unleaded.

And there were huge line-ups at stations throughout Halifax, N.S., following rumours that prices in the area had climbed to $1.79 a litre.

Oil companies maintained that the price for gas in most major eastern Canadian cities was between $1.00 and $1.20 for most of Thursday. But the rumours were enough to send drivers scrambling.

Hurricane Katrina already took out more refining capacity in the U.S. than exists in all of Canada -- according to Fred Scharf of PetroCanada. He added that supplies were already tight before Katrina hit.

But the industry is also insisting the fluctuations will settle down. That declaration is backed up by a new report from the Toronto-Dominion Bank, which predicts gas prices falling next year, but only to about 70 or 80 cents a litre.

The chief economist at BMO Nesbitt Burns, meanwhile, said the "worst case scenario" is that gas prices could go up to about $1.50 if the hurricane does end up temporarily shutting down key refineries in the Gulf of Mexico.

"Now, that's not great, but it's not the end of the world," Sherry Cooper told CTV News. "And gasoline will be readily available in (Canada). We won't suffer damage to our pipelines the way the U.S. will. And, in addition, this could be just a relatively short term phenomenon."

Natural gas concerns

But while Cooper said there's no reason to panic in Canada, she added that we should be concerned over rising natural gas and heating oil prices, "which could well be sustained in the winter."

"And in most places in Canada, we haven't gotten the full blast of winter yet," she added.

The high cost of energy is expected to dominate the political agenda when MPs get back to work in Ottawa on Monday.

Liberal Finance Minister Ralph Goodale said the government is examining options to help Canadians cope with the added costs, but provided no details. Opposition Leader Stephen Harper, meanwhile, said on Thursday that he would cut federal gas taxes if the Conservatives were in power.

Refineries bracing for Rita

The Category 4 hurricane currently churning in the Gulf was expected to strike Texas -- the heart of U.S. oil production -- on Saturday.

Across Texas, traffic came to a standstill and gas shortages were reported as highways and gas stations jammed with thousands of motorists trying to escape the hurricane.

More than 1.3 million people in Texas and Louisiana -- including thousands of oil workers -- have been ordered to evacuate.

"No question, prices are driven by Hurricane Rita," Singapore Energyintel analyst Sam Dale told The Associated Press.

"The fuse is that it will force refinery closures, and if these facilities close it is going to reduce inventories."

Companies are still repairing damage from Hurricane Katrina and the shortage of refining capacity has already pushed up prices.

Oil jumped more than $1 in early trading Thursday, but fell back midday as concerned eased after reports that hurricane Rita could slow further by the time it reaches land.

Texas has 26 refineries and 18 of them are located near the Gulf of Mexico. Nine of those facilities, representing 12 per cent of U.S. refinery capacity have already closed, Dow Jones Newswires reported.

Four refineries hit by Katrina are still out of action and oil traders are concerned about how Rita could further affect capacity.

"Some of those refineries in Texas, they're at sea level. It's a table top, it floods every easily," Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, told AP.

Energy firms have been evacuating hundreds of workers as Hurricane Rita headed to the Gulf of Mexico after pounding Florida and Cuba. Shell, BP, Chevron, Apache, Anadarko, Exxon Mobil, Valero and ConocoPhilips all said they had taken steps to protect staff.

The U.S. Minerals Management Service said that more than 70 per cent of oil production in the Gulf had been shut down because of Rita.

According to the Service, almost half of the manned offshore platforms and oil rigs in the Gulf had been evacuated.

OPEC members, responsible for a third of global output, have said the problem is not with the amount of crude available but with refining capacity. However Guy Caruso, head of the U.S.

Energy Information Administration, accused OPEC of constraining to keep prices high.

"Without question," Caruso said Wednesday during a Senate Commerce Committee hearing.

"OPEC policy has been to constrain production and collude. Under the FTC definition of collusion and price-fixing, yes, he said."

With a report by CTV's David Akin in Ottawa