Midwest Gasoline Surges to Record on Regional Supply Shortages

Spot gasoline in the U.S. Midwest jumped to a record premium as refinery repairs and a delay in pipeline deliveries reduce supplies in the region.

The Explorer Pipeline, which transports oil products to the Midwest from the Gulf Coast, can take 11 days to deliver a barrel, the company’s website shows. The company said this week that shipments are delayed because of larger-than-expected demand. Refineries including Exxon Mobil Corp.’s Joliet plant in Illinois and Northern Tier Energy LLC’s St. Paul Park plants in Minnesota were also performing unit repairs in recent weeks.

“All of these factors are affecting gasoline supply in the region,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by telephone. “The industry has been shipping significant quantities up the Explorer pipeline to make up for the shortfalls. I expect the situation to get better in the early part of June after refineries return from maintenance and have increased rates.”

Gasoline supplies in the Midwest, known as the PADD 2 region, are at the lowest for this season in five years, according to the U.S. Energy Information Administration, the Energy Department’s statistical arm. Stockpiles dropped by 898,000 barrels to 47.8 million in the week ended May 10, the smallest in six months, the EIA said yesterday.

Group Three

Conventional, 87-octane gasoline in Group 3, the region north of Tulsa, Oklahoma, to Minnesota and North Dakota, advanced 1.5 cents against futures traded on the New York Mercantile Exchange to 64 cents a gallon at 4:06 p.m. East Coast time, data compiled by Bloomberg show. That’s the biggest spread for the fuel since Bloomberg began compiling pricing in 1990.

“I’m not buying at this price,” Steve Mosby, vice president of supply consultant ADMO Energy LLC in Kansas City, Missouri, said by telephone. “Let it be someone else’s problem.”

Deliveries on the Explorer should “take the last of the edge off” the market within 10 days, Mosby said. “It feels like we’re rounding the corner.”

Magellan Midstream Partners LP began allocating conventional, 87-octane gasoline and ultra-low-sulfur diesel at some terminals in the central U.S. earlier this month due to “lower than normal” supplies into its system, Bruce Heine, a company spokesman in Tulsa, Oklahoma, said by e-mail today.

Conventional, 85-octane, or CBOB, in Chicago surged 12.5 cents to a premium of 35 cents a gallon, the highest since August.

Gulf Gasoline

Gasoline on the U.S. Gulf Coast weakened against futures for a second day as Colonial Pipeline Co. shut Line 1 to investigate a “possible integrity issue” on a section of the main gasoline line near Opelousas, Louisiana. Excavation and potential repairs near Opelousas are expected to take 12 to 18 hours or until tomorrow “mid-morning,” the company said in a bulletin to shippers.

The work is unrelated to repairs being made to a different line segment near Hebert, Texas, where gasoline was found on the right of way. That resulted in an hour-long shutdown of Line 1 yesterday, Colonial’s bulletin shows. The company stopped accepting gasoline from Houston sources for the Hebert repairs.

Conventional gasoline, or CBOB, on the Gulf Coast dropped 1 cent to a discount of 18.5 cents a gallon versus gasoline futures.

Line 1, which can carry 1.5 million barrels a day of gasoline from the Houston area to Greensboro, North Carolina, supplies fuel to states in the Southeast and connects at Greensboro to Line 3, which ends at Linden, New Jersey.

CBOB in New York Harbor slipped 0.5 cent to 14.38 cents a gallon below futures.

Royal Dutch Shell Plc will “implement contingency plans” if necessary during the pipeline work, Kimberly Windon, a company spokeswoman in Houston, said by e-mail today.

Before it's here, it's on the Bloomberg Terminal.