Fuel Surge

By Brian L. Milne, Refined Fuels Editor for DTN

Wholesale gasoline prices moved higher across the U.S. during the final week of January on concerns that supply levels would tighten because of a potential strike by as many as 24,000 union workers at U.S. oil refineries.

Even before the Feb. 1 contract deadline, wholesale gasoline prices were finding pricing strength after a government report released Jan. 28 showed a small, but unexpected drawdown in national gasoline stockpiles as refineries continued their efforts in ratcheting back production of the transportation fuel amid weakening demand.

View DTN’s Weekly and Historical Gas Prices

The United Steelworkers union raised the possibly of a strike amid tough negotiations with oil refiners, with the union rejecting its third offer made by lead negotiator Royal Dutch Shell PLC on Jan. 29. Contract negotiations were extended by 24 hours beyond the Feb. 1 deadline. The Shell negotiations are expected to set the standard on national issues such as health care for the union workers at a number of oil refineries owned and operated by ExxonMobil Corp., Valero Energy Corp., BP PLC and ConocoPhillips.

Production Drops
Meanwhile, gasoline production has so far fallen every week in 2009 as refineries reduce production to match demand as well as shutting units for seasonal maintenance. Oil refineries typically schedule extensive maintenance, sometimes planning major work referred to as turnarounds as much as four years in advance, during the late winter, early spring and fall periods. The timeframe is established to avoid peak demand periods in the summer for driving and in the winter when producing heating fuels.

Maintenance during the recently started turnaround season is expected to be longer than usual, with some refineries starting their outages earlier this year. The reason is a combination of extending maintenance during a period of low margins and after years of running refineries harder than usual because of climbing demand.

The latest weekly data released by the Energy Information Administration, the statistical arm of the Department of Energy, estimated gasoline demand was down 1.7% against the comparable period in 2008. Gasoline consumption fell 3.3% in 2008 versus 2007.

All metropolitan markets in the U.S. should see their retail gasoline prices move higher this week. A growing unemployment rate is one factor that could slow the increase in gasoline prices in the coming weeks, but in the short term expect reduced supply availability to support higher prices at local gasoline outlets.

About the Author
Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at mailto:brian.milne@dtn.com.

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