U.S. Midwest Gasoline Tumbles on Speculation Demand Fell

U.S. Midwest gasoline tumbled for a fifth day, reaching the narrowest premium to New York futures in two weeks, on speculation that demand is weakening as regional shortages ease.

Conventional, 87-octane gasoline in Group 3, which includes areas north of Tulsa, Oklahoma, to Minnesota and North Dakota, weakened 3.75 cents to 16.25 cents a barrel above futures on the New York Mercantile Exchange at 2:33 p.m.

The differential, which rallied to a record premium of 64 cents on May 16, may be easing as shipments of gasoline are closer to arriving following delays on Explorer Pipeline Co.’s Explorer line. The pipeline, which transports oil products from the Gulf Coast to the Midwest, is delayed because of larger-than-expected demand, according to the company.

“I just don’t see a lot of people looking for the barrels here in comparison to the last five days,” Ken Malloy, a broker with Danaher Oil Co., said by phone from Fairfield, Iowa.

Supplies of motor fuel in the U.S. Midwest, referred to as PADD 2, are at the lowest level for this season since 2009, according to U.S. Energy Information Administration data. Stockpiles dropped 159,000 barrels to 47.6 million barrels in the week ended May 17, a fifth consecutive week of losses, the data show.

Maintenance at refineries including Exxon Mobil Corp. (XOM)’s Joliet, Illinois, plant, BP Plc (BP/)’s Whiting, Indiana, site and HollyFrontier Corp. (HFC)’s El Dorado, Kansas, refinery may have aided the decline.

Allocation, Crack

Magellan Midstream Partners LP (MMP) implemented an allocation program for gasoline and diesel fuel at certain terminals in the Midwest for an undetermined amount of time, the company said last week.

“A lot of the terminals on the north end of the system are allocated,” said Steve Mosby, vice president of supply consultant Admo Energy LLC in Kansas City, Missouri. “Any relief from Explorer won’t hit Tulsa until the 28th and it will take some time to make it out to those terminals.”

Ultra-low-sulfur diesel fuel in Group 3 strengthened 0.37 cent to a premium of 7.25 cents a gallon versus Nymex futures, snapping a two-day decline.

The 3-2-1 crack spread in the Group, a rough measure of refining margins for gasoline and diesel fuel based on West Texas Intermediate in Cushing, Oklahoma, slipped 4.25 cents to $31.6636 a barrel.

Group 3 was at a premium of 35.43 cents to the same fuel on the Gulf Coast, 2.57 cents less than yesterday, according to data compiled by Bloomberg.

To contact the reporter on this story: Christine Harvey in New York at charvey32@bloomberg.net

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

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