Gasoline Jumps as Lower Margins, Maintenance May Limit Output

Gasoline rose the most in three weeks on speculation lower refinery margins and seasonal maintenance along the U.S. East Coast may limit fuel production.

Futures gained 2.9 percent. Phillips 66’s Bayway refinery in New Jersey and PBF Energy Inc.’s Delaware refinery are conducting planned work. Gasoline’s premium to Brent crude, the benchmark for imported oil, dropped to near-parity this week for the first time since December 2011 from more than $22 in July. Gasoline imports last week were 16 percent below the five-year average.

“Negative margins will discourage gasoline production,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “Prices are also too low to encourage domestic production or imports. U.S. refinery runs will fall and imports will fall.”

Gasoline for November delivery rose 7.51 cents to settle at $2.6981 a gallon on the New York Mercantile Exchange on trading volume that was 29 percent above the 100-day average at 4:48 p.m. Prices fell 13 percent in September.

Speculation that supplies will decline boosted margins. The motor fuel’s crack spread versus WTI widened $1.75 to $10.31 a barrel. The premium to Brent rose 41 cents to $1.52.

Phillips 66’s Bayway and PBF’s Delaware City refineries account for 420,000 barrels of daily capacity, 29 percent of the 1.44 million barrels spread among five East Coast plants and one Canadian site that are the main fuel supplies to the New York Harbor market.

Refinery Rates

In the week ended Oct. 4, East Coast refinery rates sank 10 percentage points to 76 percent, a seven-month low, Energy Information Administration data show. Supplies of reformulated gasoline blendstocks, or RBOB, along the East Coast where Nymex futures are delivered, rose 14 percent to an eight-week high of 18.1 million barrels.

“The maintenance outages on the East Coast at Phillips 66 and PBF will reduce supplies of RBOB in the Harbor,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Gasoline imports to the East Coast rose 37,000 barrels last week to 547,000 barrels a day.

“Gasoline imports are going to be light the next few weeks because economically it doesn’t look like it makes sense,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York.

Budget Talks

Futures also surged with equities amid optimism that Congress and the White House can reach an agreement to raise the debt ceiling and avoid a default. The Standard & Poor’s 500 Index jumped 2.2 percent, the most since January. The White House endorsed a plan by House Republican leaders for a short-term increase in the debt ceiling that would continue the government shutdown that started Oct. 1. The deadline to raise the debt ceiling and avoid default is Oct. 17.

“The stock market is roaring and that is definitely supportive,” Lebow said.

Pump prices, averaged nationwide, fell 0.3 cent to $3.351 a gallon, 46.2 cents below a year ago, Heathrow, Florida-based AAA said today on its website.

Ultra-low-sulfur diesel for November delivery rose 5.26 cents, or 1.7 percent, to $3.07 a gallon on trading volume that was 39 percent above the 100-day average.

Distillate inventories fell 2.4 percent last week, according to EIA data. Supplies have dropped four consecutive weeks, declining 7.7 percent.

“The draws are a little bit disconcerting,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania.

ULSD’s premium versus WTI widened 81 cents to $25.93 a barrel. The crack spread over Brent fell 53 cents to $17.14.