Chicago Gasoline Weakens as Refineries Increase Runs

Spot gasoline weakened versus futures for a second day in Chicago as refineries boosted processing by the most in 20 months and area supplies grew.

Refiners in the Midwest, the PADD 2 region, increased processing of crude and other feedstock by 8.8 percent to 3.38 million barrels a day in the week ended March 15, the biggest increase since July 2011, according to the Energy Information Administration, the statistical arm of the Energy Department. Gasoline inventories rose 157,000 barrels to 53.9 million.

“We’re seeing more production and more availability of product, so we think we’ll continue to see weakening in Chicago,” Ed Malloy, Fairfield, Iowa-based president of Danaher Oil Co., said by phone. “There’s also been sluggish demand.”

The discount for conventional, 85-octane gasoline, or CBOB, in Chicago slipped 10.75 cents to 23 cents a gallon below futures traded on the New York Mercantile Exchange at 4:22 p.m., according to data compiled by Bloomberg. Ultra-low-sulfur diesel strengthened 1.13 cent to a premium of 9.63 cents a gallon versus Nymex heating oil futures.

Last week’s processing and inventory increases may have been aided by the scheduled restart of some units at Marathon Petroleum Corp.’s 240,000-barrel-a-day Catlettsburg, Kentucky, refinery, which has been in a turnaround since early February, according to state regulators. The plant was to restart a fluid catalytic cracker and sulfur recovery unit between March 9 and March 11, a Feb. 6 filing showed.

Storage Speculation

Shane Pochard, a company spokesman based in Findlay, Ohio, confirmed at the time that the dates provided to state regulators were correct. He declined today to comment until all Catlettsburg refinery work is complete.

The 3-2-1 crack spread in Chicago, a measure of refining profitability for gasoline and diesel based on West Texas Intermediate in Cushing, Oklahoma, declined $3.25 to $29.30 a barrel, the lowest level in almost three weeks, data compiled by Bloomberg showed.

Spot gasoline in the region, which fell from a discount of 12.5 cents at the start of the week, may weaken further on speculation Midwest storage terminals are full, while more product is being shipped from the Gulf, Malloy said.

“At lot of people who bought Chicago gasoline at discounted levels have filled up some of the terminals and storage that’s out there,” Malloy said. “The ability to take any more is limited, and also gasoline is weak on the Gulf so there has been more shipping.”

Chicago-Gulf Spread

Conventional, CBOB gasoline in Chicago traded 5.75 cents a gallon above the same fuel on the U.S. Gulf Coast. The spread narrowed from 15.5 cents yesterday.

“Unless that price between Chicago and the Gulf Coast is much wider, I don’t think there’s an incentive to really send barrels up to to Chicago,” Jim Mosby, supply manager at ADMO Energy LLC, a supply consultant in Kansas City, said in a phone interview. “The storage play makes sense and it may also be that demand is a bit weaker.”

The discount for CBOB on the Gulf Coast widened 1 cent to 28.75 cents a gallon. Ultra-low-sulfur diesel in the region gained 0.25 cent to trade at a premium of 7.25 cents to heating oil futures.

The 3-2-1 crack spread on the coast, for gasoline and diesel based on WTI, widened 55 cents to $29.53 a barrel. The same spread for Light Louisiana Sweet oil rose $3.55 to $8.73 a barrel, a second consecutive daily increase.