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Gasoline Slips on Speculation Plant Startups Will Boost Supply

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July 22 (Bloomberg) -- Gasoline fell the most in a month on speculation that the refinery shutdowns that boosted prices last week will soon be resolved and production will increase.

Futures sank 2.2 percent. August gasoline’s premium to September narrowed, indicating less concern that the outages would drain supplies. Futures rose three consecutive weeks on speculation that upsets at plants along North America’s East Coast might crimp New York Harbor supply. Crack spreads narrowed.

“Gasoline is down on expectation that several of the refinery issues in the Northeast will be resolved this week,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

August-delivery gasoline fell 6.83 cents to $3.0551 a gallon on the New York Mercantile Exchange on trading volume that was 4.7 percent above the 100-day average at 3:26 p.m. Gasoline has gained 11 percent in July, the best performer in the Standard & Poor’s GSCI index of 24 commodities.

August gasoline’s premium to September narrowed 2.84 cents to 3.69 cents a gallon. Gasoline sank 4.53 cents versus August ultra-low-sulfur diesel to a 1.13 cent discount.

Large speculators’ bullish gasoline wagers jumped by 19,244 futures and options combined, or 59 percent, to 51,737 contracts in the seven days ended July 16, according to the Commodity Futures Trading Commission’s July 19 Commitments of Traders report.

Issues Resolved

“Some of those refinery issues are going to get resolved,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “We had an awful lot of length piled into the market. Some of it could be unwinding and some of the gas-to-heat spread length is getting unwound.”

The Energy Information Administration reported that gasoline supplies rose 3.06 million barrels in the week ended July 12 to 224.1 million. Demand sank 6.1 percent from a week earlier, while over the past four weeks it was 2.3 percent above a year ago.

The total inventory increase came as refiners used 92.8 percent of capacity, the highest level in almost a year, and processed a seasonal record amount of crude and other feedstocks last week.

Gasoline output fell 5.6 percent to 9.05 million barrels a day, the lowest rate in seven weeks, as refiners shut process units for unplanned outages.

Inventory Survey

Gasoline inventories probably rose 1.5 million barrels last week, according to the median estimate of nine analysts in a survey by Bloomberg.

“We’re going to get one more seasonal build in gasoline,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “What we’re seeing is refineries doing what they’re in the business of doing, converting crude into products at a high operating rates at a low unit cost. And summer driving season is halfway gone.”

Gasoline’s crack spread versus WTI narrowed $1.73 to $21.40 a barrel. The fuel’s premium to Brent fell $1.76 to $18.61.

Pump prices, averaged nationwide, were unchanged at $3.671 a gallon, Heathrow, Florida-based AAA said today on its website. Prices rose every day from July 8 to July 18, reaching the highest level since March 22. West Texas Intermediate crude for August delivery on the Nymex reached a 16-month high of $108.05 a barrel July 19. WTI retreated 1.1 percent today to $106.91.

Price Increase

“We’re looking at as much as a 30-cent increase in pump price between now and Labor Day if we don’t see a further substantial decrease in crude prices,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania.

Ultra-low-sulfur diesel for August delivery also fell the most in a month, dropping 2.3 cents, or 0.7 percent, to $3.0664 a gallon on volume that was 8.8 percent above the 100-day average.

ULSD’s crack spread versus West Texas Intermediate crude widened 17 cents to $21.88 a barrel. The premium over Brent declined $1 to $20.74.

To contact the reporter on this story: Barbara Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net

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