Refinery Shutdowns Interrupt U.S. Pump Price DeclineDan Murtaugh and Moming Zhou
Refinery breakdowns have pushed wholesale gasoline in the Gulf Coast to the highest level since July, halting a drop in pump prices across the U.S.
Gasoline in the Gulf, home to more than half of U.S. refining capacity, has jumped 20 cents a gallon in the past two weeks. October-delivery futures contracts, the benchmark for gasoline sold across the country, are the highest this month. U.S. retail prices, which tend to lag behind moves in the spot and futures markets, have risen 0.7 cent in three days, after falling every day since Sept. 5.
Prices have climbed as refineries in eastern Canada and Texas have been forced to shut units for unplanned repairs at a time when other plants are conducting seasonal maintenance. Hedge funds and other speculators were the most bearish in four years as of Sept. 16, adding fuel to the rally.
“Clearly the tightness is a result of significant FCC works, largely unplanned,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. “If you combine that with the number of shorts in the gasoline market, which were very high as well, it means that you are seeing a very strong rally.”
October gasoline gained 5.42 cents, or 2 percent, to $2.718 a gallon today on the New York Mercantile Exchange. The spread between first- and second-month contracts rose 2.67 cents to 17.82 cents a gallon, the biggest gap in almost two years.
Retail gasoline strengthened for the third day in a row, up 0.1 cent to $3.345 a gallon, according to Heathrow, Florida-based AAA.
Gasoline supplies in the Mid-Atlantic region, which includes New York, the delivery point for Nymex futures, have dropped three consecutive weeks to 10 percent below a year ago, as Irving Oil Corp. and North Atlantic Refining Ltd. have cut production at refineries in eastern Canada.
Irving’s Saint John plant in New Brunswick, which ships about half of its fuel production to the northeast U.S., shut an alkylation unit on Sept. 23, Genscape Inc. reported yesterday. A crude unit and fluid catalytic cracker are also shut.
North Atlantic’s Come By Chance refinery in Newfoundland shut units for a month of maintenance during the first week of September.
October futures were already at a premium to contracts for later delivery at the beginning of September as the market transitioned from summer-blend to winter-blend gasoline. On Sept. 15, the Environmental Protection Agency allows retailers to start selling winter gasoline, which can have higher higher vapor pressure and therefore contain more lower-cost butane.
“By nature the market is backwardated, so there are lean inventories as it is,” said Eric Rosenfeldt, vice president of supply and trading at Papco Inc. in Virginia Beach, Virginia. “You add to that Irving and Come by Chance, whether because of turnarounds or other issues, you take that supply out of the market, and you’ve got problems.”
Money managers were net-long 8,277 contracts of futures and options as of Sept. 16, the fewest since September 2010, Commodity Futures Trading Commission data show.
Gulf Coast conventional gasoline rose 1.5 cents to 14.5 cents above Nymex futures today, the highest since Sept. 26, 2012. Reformulated gasoline in New York jumped 2.38 cents to 9.63 cents a gallon above futures.
The amount of fluid catalytic cracking capacity offline in Texas is at the highest level for this time of year since at least 2011, data compiled by Bloomberg show. The units break down vacuum gasoil to produce fuel including gasoline and diesel.
Companies including Alon USA Energy Inc., Exxon Mobil Corp. and Citgo Petroleum Corp. have reported equipment failures just as plants from Marathon Petroleum Corp.’s Galveston Bay complex to Phillips 66’s Sweeny site shut units for scheduled repairs.
“The physical markets are relatively tight,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone today. “We had four glitches just yesterday. It’s set off a bit of a panic.”