Slide in U.S. Gasoline Prices Slows Amid Refinery WoesDan Murtaugh and Moming Zhou
The slide in retail gasoline that U.S. drivers typically see this time of year hit a speed bump this week as a series of refinery breakdowns tightened supply.
Gasoline on the Gulf Coast, home to more than half of U.S. refining capacity, surged 20 cents a gallon over two weeks. October-delivery futures in New York, the benchmark grade for gasoline sold across the country, settled yesterday at the highest this month. Retail prices, which tend to lag behind moves in the spot and futures markets, rose three days this week after falling every day since Sept. 5.
The seasonal decline, which averaged 11 cents in September during the past five years, has slowed as refineries in eastern Canada and Texas shut units for unscheduled repairs at a time when other plants are conducting seasonal maintenance.
“The significant amount of refinery maintenance going on, particularly in the Gulf Coast, has led to tightening supplies, and as a result the steep decline in gas prices many drivers saw earlier in the month has stopped,” Michael Green, spokesman for AAA in Washington, said by telephone. “The overall trend will continue to fall over the next few months.”
October gasoline dropped 7.22 cents, or 2.7 percent, to $2.6458 a gallon at 9:37 today on the New York Mercantile Exchange after rising to $2.718 yesterday. The spread between first- and second-month contracts dropped 2.27 cents from the highest level in almost two years to 15.55 cents a gallon.
Retail gasoline slipped 0.1 cent to $3.344 a gallon yesterday, according to Heathrow, Florida-based AAA.
Money managers were net-long 8,277 futures and options contracts as of Sept. 16, the fewest since September 2010, data from the Commodity Futures Trading Commission show, which helped the futures rally earlier in the week.
“The shorts bought a lot of contracts yesterday and now they are covered,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.
Gasoline supplies in the Mid-Atlantic region, which includes New York, have dropped for three weeks to 10 percent below a year ago, as Irving Oil Corp. and North Atlantic Refining Ltd. cut production at refineries in eastern Canada.
Irving’s Saint John plant in New Brunswick, which ships about half of its fuel output to the U.S. northeast, shut an alkylation unit on Sept. 23, according to Genscape Inc. A crude unit and fluid catalytic cracker are also shut.
North Atlantic’s Come By Chance refinery in Newfoundland closed units during the first week of September for a month of maintenance.
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 low-cost butane.
“By nature the market is backwardated, so there are lean inventories as it is,” Eric Rosenfeldt, the vice president of supply and trading at Papco Inc. in Virginia Beach, Virginia, said yesterday. “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.”
Supplies may increase as more cargoes head to the U.S. There were 17 tanker charters completed or anticipated from Rotterdam to New York in the next two weeks, according to a Bloomberg survey of 5 shipbrokers Sept. 24.
Gulf Coast conventional gasoline rose by 3 cents to 16 cents above Nymex futures yesterday, the most since August 2012 The spread narrowed to 13.75 cents at 10:45 a.m. today, according to data compiled by Bloomberg. Reformulated gasoline in New York increased 2.38 cents to 9.63 cents a gallon above futures.
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.
“Clearly the tightness is a result of significant FCC works, largely unplanned,” Amrita Sen, the chief oil analyst at Energy Aspects Ltd., a consultant in London, said yesterday.