Gasoline Falls on Speculation Superstorm Sandy Will Cut Demand

Gasoline fell on speculation that demand will decline on the East Coast as Atlantic superstorm Sandy causes widespread flooding and power outages.

Futures sank as at least 3.6 million homes and businesses lost power yesterday, the U.S. Energy Department said. Philadelphia Energy Solutions said it is restoring normal operations at its 355,000-barrel-a-day refinery in Pennsylvania. The storm came ashore in southern New Jersey at 8 p.m. local time yesterday, driving floodwaters to life-threatening levels.

“It’s too early to tell if major damage was done to the refineries but we do know nobody is driving up and down the East Coast,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “This could be the biggest demand destruction event short-term. It will take time to get back to normal.”

Gasoline for November delivery fell 2.8 cents, or 1 percent, to settle at $2.7288 a gallon on the New York Mercantile Exchange. All trading was electronic as the Nymex floor was closed a second day for the storm.

After surging 23 percent in the third quarter, gasoline has been the biggest loser in the Standard & Poor’s GSCI index of 24 materials this month. Prices have slid 18 percent so far in October as refineries restarted units after repairs and wholesale demand declined.

Futures jumped 2.1 percent yesterday as six East Coast refineries accounting for 94 percent of regional processing capacity shut or reduced rates in advance of the storm, according to information from the companies and from the Energy Department. Terminals, ports and sections of product pipelines also shut.

“The market is falling in anticipation of the return of supply,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Refinery Capacity

Refiners in the region, which includes New York Harbor, the delivery point for Nymex futures, can process 1.29 million barrels a day, according to data compiled by Bloomberg. East Coast, or Padd 1, gasoline supplies were 9.1 percent below year- earlier levels in the week ended Oct. 19, Energy Department data show.

Phillips 66 and Hess Corp. (HES)’s New Jersey refineries remained shut after storm Sandy cut power to both plants late yesterday. Restart is contingent upon post-storm assessments, the companies said.

“Obviously, demand is off as well as the refineries,” Bill Klesse, the chief executive officer of refiner Valero Energy Corp., said today during the San Antonio company’s third- quarter earnings call. PBF Energy Inc.’s refineries in Delaware City, Delaware, and Paulsboro, New Jersey, are operating at reduced rates.

Gasoline Demand

Total gasoline demand fell to the lowest level since March 16 in the weekend ended Oct. 19, according to Energy Department data. East Coast gasoline consumption accounts for about 35 percent of total U.S. demand, according to department data.

Heating oil for November delivery fell 2.86 cents, or 0.9 percent, to settle at $3.0866 a gallon on the exchange. Prices have fallen 2.6 percent in October.

The average nationwide price for regular gasoline at the pump declined 0.9 cent to $3.534 a gallon yesterday, AAA, the largest U.S. motoring organization, said today on its website. That’s the lowest level since Aug. 1. Prices have fallen every day since Oct. 10. The pump price reached a 2012 high of $3.936 on April 4.

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.

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