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Gasoline Gains on Speculation Storm May Threaten Oil Production

July 26 (Bloomberg) -- Gasoline advanced on speculation that Tropical Storm Dorian will strengthen and eventually threaten oil production, refining or fuel distribution on the U.S. Gulf and East coasts.

Gasoline rose 1 percent as Dorian, 1,295 miles (3,290 kilometers) east of the northern Leeward Islands, moved west across the Atlantic with top sustained winds of 50 miles per hour, the National Hurricane Center in Miami said in an 11 a.m. advisory. The Gulf is home to 45 percent of U.S. refining capacity. New York Harbor market is the delivery point for the New York Mercantile Exchange contract. Crack spreads widened.

“Right now, Dorian is headed toward Florida,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “It could go into the Caribbean. It could go up the East Coast. Traders, if they’re looking at the National Hurricane Center map, their bias is to be long gasoline.”

August-delivery gasoline rose 2.74 cents to $3.0444 a gallon on the Nymex on volume that was 26 percent below the 100-day average. Futures declined 2.5 percent this week, the first weekly loss in a month. Gasoline gained 11 percent in July, making it the best performer in the Standard & Poor’s GSCI Index of 24 commodities.

August’s premium to September-delivery gasoline widened 0.96 cent to 4.11 cents, indicating more immediate-term concern about supply. Gasoline traded at a 3.43-cent premium to ultra-low sulfur diesel, from a 1.8-cent discount yesterday.

A week ago, gasoline reached a four-month intraday high of $3.1632 before sliding yesterday to a two-week intraday low of $2.9775. The fuel found technical support at $2.9813, the 38.2 percent Fibonacci retracement from the June low of $2.6870 to July 19 high of $3.1632. Investors typically buy contracts when prices exceed technical resistance.

Following Bounce

“Today is a follow-through on yesterday’s bounce,” said Mark Anderle, a trader at wholesaler Truman Arnold Cos. in Dallas. “Look how hard we bounced off the 38 percent retracement of the June-July rally yesterday. Also, it seems like RBOB is unlikely to sell off with the potential for a storm.”

Gasoline’s crack spread versus WTI rose $1.79 to $21.69 a barrel. The fuel’s premium to Brent widened $1.46 to $19.20.

Pump prices, averaged nationwide, fell a fourth consecutive day, dropping 0.7 cent to $3.648 a gallon, Heathrow, Florida-based AAA said today on its website. That’s the lowest level since July 15. Prices are 15.8 cents higher than a year earlier.

Ultra-low-sulfur diesel fell 0.8 percent as crude oil retreated after China reduced excess factory capacity, signaling slowing growth in the world’s second-biggest energy consumer.

China Moves

Futures fell as China ordered companies in 19 industries to cut unused production capacity. China’s manufacturing weakened more than estimated in July, according to a preliminary survey of purchasing managers. The U.S. exported 1.03 million barrels a day of distillates last week, according to a preliminary estimate from the Energy Information Administration.

Ultra-low-sulfur diesel for August delivery fell 2.49 cents to settle at $3.0101 a gallon on trading volume that was 23 percent below the 100-day average. ULSD declined 2.6 percent this week, the first loss in five weeks.

ULSD’s crack spread versus West Texas Intermediate crude narrowed 24 cents to $21.94 a barrel. The premium over Brent fell 56 cents to $19.46.

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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