Heating Oil, Gasoline Fall as Refinery Starts Mean More Supply

Heating oil and gasoline declined as refinery starts in the U.S. signaled that production rates will increase and supplies will climb.

Futures fell as Phillips 66 was scheduled to restart a fluid catalytic cracker today in Borger, Texas, and reported a startup at the Bayway plant in New Jersey, shut since Hurricane Sandy struck Oct. 29. Motiva Enterprises LLC said it would begin reopening a crude unit at its Port Arthur, Texas, refinery this month or in early December.

“The expectation is that products overall may come under pressure as Phillips 66’s Bayway and Borger come back online and Motiva Port Arthur brings back its brand new crude unit,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

December-delivery heating oil slid 3.06 cents, or 1 percent, to settle at $3.0465 a gallon on the New York Mercantile Exchange, the first decline in three days. The December contract, which expires Nov. 30, has fallen 0.7 percent this month.

December’s discount to January heating oil widened 0.4 cent to 1.29 cents, the largest difference since Oct. 30, indicating less immediate concern about supplies.

Motiva’s 325,000-barrel-a-day Port Arthur crude unit shut for repairs June 3, just weeks after its May start. The unit is the centerpiece of a $10 billion expansion that was to push the refinery’s crude processing capacity to almost 600,000 barrels a day, making it the largest in the U.S.

Products Inventories

U.S. distillate supplies, including heating oil and diesel, fell to the lowest level since May 2008 in the week ended Nov. 16 and gasoline inventories declined the most since Aug. 31, according to Energy Department data.

Matt Rogers, president of Commodity Weather Group LLC, said December may start off much warmer than usual across the U.S., which may mean less demand for heating oil. Average temperatures from Dec. 1 to Dec. 5 may be 5 degrees above normal in the East and in Maritime Canada and as much as 15 degrees higher across the Midwest, including Chicago, said Rogers, based in Bethesda, Maryland.

Futures also slipped on concern that Congress won’t reach a budget compromise in time to avoid the fiscal cliff, the nickname for a $607 billion combination of automatic spending cuts and tax increases scheduled to take effect in January.

In Europe, finance ministers were meeting today for a fourth round of talks in two weeks to try to reach agreement on aid to Greece, whose economy has been shrinking since the third quarter of 2008.

Sapping Momentum

“There’s concerns over Greece and there’s still concerns about the fiscal cliff, and it’s taking away from the bullish momentum,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

Gasoline for December delivery declined 1.76 cents, or 0.6 percent, to settle at $2.7263 a gallon. Futures have dropped 1.3 percent this month.

The average nationwide cost for regular gasoline fell 0.3 cent to $3.423 a gallon, AAA said today on its website. The pump price reached a 2012 high of $3.936 on April 4.

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