Gasoline Futures Cap Best Quarter in a Year as Supplies Decline

Gasoline Heads for Best Quarter Since 2009 as Supplies Decline
Diesel fuel at a Pilot Travel Center in Princeton, Illinois. Photographer: Daniel Acker/Bloomberg

Gasoline had its biggest quarterly gain in a year on speculation that refinery closures and seasonal repairs will trim supply of summer-grade fuel in the eastern U.S. at a time when demand typically rises.

Futures slipped today as traders settled positions in the April contract, which expired at the end of floor trading. Gasoline has increased 26 percent this year, the most of any contract in the Standard & Poor’s GSCI index of 24 commodities.

“As expiration unfolds you have to keep an eye out for what side of the market tips the scales,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “It looks as if some longs are finally bailing and that is why gasoline has dipped.”

Gasoline for April delivery fell 1.07 cents, or 0.3 percent, to settle at $3.3899 a gallon on the New York Mercantile Exchange. Prices were little changed this week, and increased 11 percent in March. The more actively traded May contract lost 3.16 cents, or 0.9 percent, to $3.3081.

East Coast refining capacity declined 36 percent from July, leaving gasoline supply in the region at an 11-week low, according to Energy Department data. BP Plc and Exxon Mobil Corp. have idled gasoline-making units for repairs at the first-and third-largest U.S. refineries. Fuel used in warmer weather has to meet more stringent emissions standards, making it more costly to produce.

“We have seen over the last couple weeks a gasoline inventory draw, as well as a number of longer-than-expected cat cracker turnarounds on the Gulf Coast impacting supply,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Supplies Decline

Stockpiles of the fuel dropped 1.8 million barrels in the seven days ended March 23 to 58.7 million in Padd 1, the Energy Department said March 28. The region includes New York Harbor, the delivery point for Nymex gasoline reformulated blendstock, or RBOB contract. Demand increased 4 percent to 8.71 million barrels a day, the highest level since December.

The government calculated operable refinery capacity in the region at 1.19 million barrels a day, down from 1.62 million in July. Sunoco Inc. and ConocoPhillips have shut two plants in Pennsylvania and Sunoco may idle a third by July that together can process more than 700,000 barrels a day of oil.

April Premium

The premium of April over May futures rose to 8.18 cents a gallon as traders were willing to pay more for delivery sooner, a market structure known as backwardation. It was the largest such gap between the two contracts nearest to expiration since September.

“With gasoline seeing support from supply worries, that continues to be the dominant theme in the market,” said McGillian.

BP shut fluid catalytic cracker No. 3 in January for work at the 475,000-barrel-a-day Texas City, Texas, plant, the third-largest in the U.S., a person familiar with the matter said at the time. Exxon idled a similar unit at the beginning of February at the 584,000-barrel-a-day Baytown refinery, the nation’s largest.

Prices also surged in the first quarter as bullish bets by hedge funds increased for 11 consecutive weeks through March 6 to 92,600 contracts of futures and options, the highest level in Commodities Futures Trading Commission data since 2006. The net-long position decreased to 88,539 contracts through March 27.

Regular gasoline at the pump, averaged nationwide, rose 0.4 cent yesterday to $3.925 a gallon, according to AAA, the nation’s biggest motoring club. Prices, which have surged 20 percent this year and 5 percent this month, were 9.2 percent above a year earlier.

April-delivery heating oil added 0.95 cent, or 0.3 percent, to settle at $3.1684 a gallon on the Nymex. Prices, which slipped 1.3 percent this week and 0.6 percent this month, gained 8 percent in the first quarter. The May contract increased 0.03 cent to $3.1701.

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