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Gasoline Futures Advance to Four-Month High as Contango Narrows

Feb. 14 (Bloomberg) -- Gasoline jumped to a four-month high as the March contract’s discount to April futures narrowed for the first time in four days.

March gasoline rose the most since Nov. 9 to reach $3.1166 a gallon, accelerating as prices passed levels watched by traders using chart strategies. Its spread to April shrank 3.66 cents to 19.98 cents, after widening to the most in seven years yesterday for the contracts nearest to expiration on speculation winter-grade supply is ample. April futures represent summer-grade fuel, which costs more to refine and blend.

“When it passed $3.085 and $3.10 today, it triggered a lot of program buying from hedge funds and commodity trading advisers,” said Michael Smith, president of T&K Futures & Options in Port Saint Lucie, Florida.

Gasoline for March delivery advanced 8.12 cents, or 2.7 percent, on New York Mercantile Exchange volume that was 42 percent above the 100-day average. The $3.1166 settlement was the highest since Sept. 28, when futures reached $3.342. Prices extended gains to $3.1386 after floor trading ended at 2:30 p.m.

The motor fuel has been the top performer this year on the Standard & Poor’s GSCI index of 24 commodities with an 11 percent gain. The April gasoline crack spread versus Brent crude on the ICE Futures Europe exchange rose to $21.29 a barrel, the biggest difference since May 2011.

Supply Levels

East Coast supplies rose last week while total U.S. inventories fell, Energy Information Administration data show.

“It’s surprising that gasoline continues to rally,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “National inventories drew this week due to the lower inventories in PADD 5 while RBOB on the East Coast in PADD 1 built substantially.”

Gains also widened as spot markets climbed in Chicago and the Gulf Coast as Citgo Petroleum’s Lemont refinery in Illinois had a process unit upset and Motiva Enterprises LLC began shutting units at its Port Arthur, Texas, refinery for work and was gradually ramping up rates on its largest crude unit.

“The rumor was there was a fire at Citgo Lemont and the Chicago cash market heated up,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.

The futures contracts are based on reformulated gasoline, or RBOB. Gasoline stockpiles in the East Coast, or PADD 1 region, which includes the Nymex delivery point in New York Harbor, jumped 1.7 million barrels to the highest level since March 16 last week, according to the EIA, the Energy Department’s statistical arm. Total U.S. supplies fell 803,000 barrels to 233.2 million.

April-September

April gasoline’s premium over September widened 2.78 cents to 27.7 cents a gallon, indicating concern that supplies will drop heading into the peak period for U.S. driving demand, which typically starts in late May.

“The concern specifically is a shortage of blending components, which you need more of for summer,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research consulting company in London. “Petrochemicals are running at max capacity because of cheap natural gas and they’re also looking for cheap feed stock.”

Hess Corp. will shut its Port Reading, New Jersey, plant later this month. Lipow estimated that the refinery can produce 50,000 barrels a day of the motor fuel and represents 7.7 percent of PADD 1 gasoline-making capacity.

Summer-Grade

“The market is expecting tight RBOB supplies in the Harbor because Hess Port Reading will be shut down and it doesn’t see much resupply of summer-grade RBOB out of Europe this summer,” Lipow said.

Heating oil for March delivery rose 0.49 cent to settle at $3.2237 a gallon on the Nymex on volume that was 2.3 percent above the average.

Inventories of distillate fuels, including heating oil and diesel, declined 3.68 million barrels to 125.9 million, the EIA reported. Heating oil supplies in PADD 1 increased 430,000 barrels.

The retail price for regular gasoline, averaged nationwide, rose 1 cent to $3.628 a gallon, the highest level since Oct. 22, AAA said today on its website. Costs have climbed 10 percent this year and are 11.5 cents above a year ago.

To contact the reporter on this story: Barbara 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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