Gasoline Supply Seen Down to 1990 Low on Sandy: Energy Markets

Gasoline stockpiles on the U.S. East Coast may sink to the lowest level since at least 1990 as Hurricane Sandy moves ashore, curtailing fuel production and distribution, based on Energy Department data.

Refineries accounting for 94 percent of regional processing capacity shut or reduced rates before Sandy, the largest tropical storm on record in the Atlantic, approached the East Coast yesterday. Colonial Pipeline Co., which operates the largest link between Gulf Coast refiners and East Coast distributors, planned to shut its main line delivering fuel to Philadelphia and New York Harbor late yesterday as customers shuttered operations.

Prices had jumped 5.9 percent in three days, breaking the longest losing streak since 1986, as the storm headed directly for the heart of East Coast fuel refining and distribution. Gasoline inventories in the central Atlantic area are already 16 percent below a year earlier. Sandy threatens to flood and disrupt power at refineries and terminals that account for one- third of U.S. finished gasoline production, according to BNP Paribas SA.

“Given that the hurricane is passing over the refining and terminal system and not just near them, it’s clear that supply concerns will outweigh concerns about reduced demand as people stay home,” Harry Tchilinguirian, BNP Paribas SA’s head of commodity markets strategy in London, said in an interview yesterday. “You’re going to have a run-up in prices that could be kept up.”

Gasoline Futures

Gasoline for November delivery fell 1.3 percent to $2.7221 a gallon at 1:48 a.m. in electronic trading today after rising 5.77 cents yesterday to settle at $2.7568 a gallon on the New York Mercantile Exchange, the third day of gains.

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 19 percent so far this month as refineries restarted units after repairs and demand sank to the lowest level since March 16 in the week ended Oct. 19, according to Energy Department data.

Inventories in the central Atlantic, which includes Philadelphia and New York, were 22.9 million barrels as of Oct. 19, up from 20.4 million Sept. 28.

Supplies dropped 1.9 million barrels from Aug. 19, 2011, to Sept. 2 that year when Hurricane Irene swept along the East Coast. A similar decline would reduce supplies that at the end of September were at the lowest level since the Energy Department began publishing weekly figures in November 1990.

Refineries Shutting

The refineries shutting production ahead of the storm account for 1.22 barrels of the area’s 1.29 million-barrel-a-day capacity. In New Jersey, Phillips 66 shut its 238,000-barrel-a- day Bayway plant and Hess Corp. (HES) shut its 70,000-barrel-a-day refinery in Port Reading.

Philadelphia Energy Solutions said many of the process units at its 355,000-barrel Philadelphia refinery were shut. PBF Energy Inc. reduced rates at its 185,000-barrel Paulsboro, New Jersey, and 182,200-barrel Delaware City, Delaware, plants. The Energy Department reported that the 185,000-barrel-a-day Trainer refinery in Pennsylvania, run by Delta Air Lines Inc.’s Monroe Energy LLC subsidiary, is operating at reduced rates.

Colonial began shutting delivery lines along the East Coast as customers in Virginia, Maryland, New Jersey and New York halted operations. Line 3, an 825,000-barrel-a-day fuel pipeline running from Greensboro, North Carolina, to Philadelphia and Linden, was expected shut as of 7 p.m., Steve Baker, a company spokesman, said in an e-mail. Buckeye Partners LP (BPL) said its pipelines delivering fuel from Linden were shutting as of 4 p.m.

East Coast Blending

The East Coast received 1.42 million barrels a day of finished gasoline and fuel to be blended with ethanol at terminals in July, Energy Department data show. Imports to the region were 471,000 barrels a day in the week ended Oct. 19, department data show.

The storm threatens to reverse an increase in East Coast capacity over the past year as refiners processed less expensive oil from Texas and North Dakota shale formations instead of pricier imports. U.S. oil production reached 6.61 million barrels a day in the seven days ended Oct. 19, the most since 1995, department data show.

North Dakota Bakken crude sank $6.50 a barrel to a $10 discount to benchmark West Texas Intermediate yesterday, according to data compiled by Bloomberg as refiners shut production.

Shutting Terminals

Hess, Nustar Energy LP (NS), Phillips 66 (PSX), Citgo Petroleum Corp. and Kinder Morgan Energy Partners LP (KMP) said they closed fuel terminals. The East Coast is a major blender of gasoline and much of that blending occurs at terminals. New York, New Jersey and Delaware Bay ports were closed to vessel traffic by the U.S. Coast Guard, halting tankers that deliver gasoline to suppliers and also help supply the region’s refineries with crude oil.

“If there’s damage to these terminals and ports, if the ability to get product is compromised, that will be the real challenge,” said Sander Cohan, a global transportation fuels analyst and principal with Energy Security Analysis Inc. in Wakefield, Massachusetts. “You will see the largest demand region in the U.S. deprived of fuel.”

If the outages are short-lived, the market may focus its attention from supply to demand if the hurricane disrupts people’s ability to drive.

Dropping Demand

“The market is overlooking that we’re going to lose about 2 million barrels of demand,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “Prices could rapidly fall if those still operating ride out the storm unscathed and return to normal operations on Wednesday and the market recognizes a significant amount of demand.”

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 on its website. That’s the lowest level since Aug. 1. Prices have fallen, or were unchanged, every day since Oct. 7, losing 7.4 percent. The pump price reached a 2012 high of $3.936 on April 4.

AAA expects that disruption to supply will be short-lived and that the bigger threat is to demand so it has not changed its projection that the national average will fall as low as $3.40 a gallon by election day, Avery Ash, a spokesman for AAA in Washington, said in an interview.

“You’ve got a slow-moving storm that is going to keep motorists off the road for a number of days in a very, very wide region,” said Ash. “We may see a short-term regional bump in prices but, once the storms move through, the national average will continue on its downward trend the rest of the year.”

Inventory Report

U.S. gasoline inventories probably fell by 600,000 barrels in the week ended Oct. 26 on a nationwide basis, according to the median estimate of eight analysts surveyed by Bloomberg.

The Energy Department’s weekly inventory report, which is normally published at 10:30 a.m. Washington time each Wednesday, will be postponed until at least Nov. 1 because of Sandy, Jon Cogan, a spokesman for the Energy Information Administration said in an e-mail today. Crude inventories are projected to have risen 1.475 million barrels, according to the analyst survey.

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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