Gasoline Falls on Speculation Prices Rose too High on Flooding

Gasoline fell for the first time in three days on speculation that prices rose too high without confirmation that flooding on the Mississippi River will cut fuel supplies.

Futures sank as much as 4.7 percent after gaining 9.4 percent the prior two days on concern that U.S. supplies would fall further from a 22-month low. The river flooding may swamp 3 million acres as high waters move south from Memphis and threaten Louisiana.

“Some traders may have said the market was a little ahead of itself,” said Tom Knight, vice president of trading and supply at Truman Arnold Cos. in Texarkana, Texas. “There was profit taking on crack spreads, backwardation, cash prices. Background fundamentals are still the same, there is no gas.”

Gasoline for June delivery fell 12.3 cents, or 3.6 percent, to $3.2567 a gallon at 9:55 a.m. on the New York Mercantile Exchange, after touching $3.2223. June’s premium over July narrowed 2.44 cents to 10.15 cents a gallon.

The June crack spread, or premium of gasoline over crude oil, sank $3.02 to $35.05 a barrel, after reaching a record high yesterday.

On the Mississippi between New Orleans and Baton Rouge, there are 11 refineries with a combined capacity of 2.5 million barrels a day, or 13 percent of U.S. output, according to Andy Lipow, president of Lipow Oil Associates LLC in Houston.

“There are some issues with river terminals shut down because of high water,” Knight said. “A lot of those river refineries have a tremendous amount of inbound and outbound traffic on barges.”

Water Levels

Water levels were forecast to hold below 48 feet (14.6 meters) in Memphis before the floods move south toward Louisiana and then empty into the Gulf of Mexico past New Orleans in about two weeks.

“Gasoline led the market on the way up on fears that the Mississippi would cause major flooding to refineries,” said Lipow. “The actual impact is likely to be more limited to the logistics and distribution system along the waterways.”

To relieve the threat to New Orleans and Baton Rouge, Louisiana’s capital, the U.S. Army Corps of Engineers may open the Morganza floodway. Opening it halfway would inundate a swath of central Louisiana along the Atchafalaya River with 5 feet to 20 feet of water. The decision to open the floodway may come as soon as May 14, Louisiana Governor Bobby Jindal said at a press conference in Baton Rouge yesterday.

“The majority of products go out the pipeline. You do have crude oil tankers going up the river and some product tankers loading before going to the Florida market,” Lipow said.

Weekly Data

The Energy Department is scheduled to report last week’s inventories at 10:30 a.m. today in Washington. The industry- funded American Petroleum Institute said yesterday that gasoline stockpiles dropped 1.84 million barrels.

U.S. supplies of the motor fuel probably fell 750,000 barrels last week from the previous week’s 204.5 million, according to the median estimate of 17 analysts in a survey by Bloomberg News. Supply disruptions after May 6 would not be reflected in the department’s report today.

“I don’t think the bullish picture is finished, we just had a correction today,” said Ray Carbone, president of Paramount Options Inc. in New York. “And we’re only a few weeks from the summer driving season.

The peak gasoline demand period starts after the Memorial Day holiday in late May and ends on Labor Day in early September. The holidays fall on May 30 and Sept. 5 this year.

Regular retail gasoline rose 1.1 cents to $3.962 a gallon yesterday, AAA said on its website.

Stockpiles of distillate fuels, including heating oil and diesel, were likely unchanged, according to the survey.

Heating oil for June delivery lost 3.21 cents, or 1.1 percent, to $2.9691 a gallon on the exchange.

To contact the reporter on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net