Wholesale Gasoline Costs Tumble with Pipeline Restart

By Brian L. Milne, Refined Fuels Editor, Telvent DTN

A relatively quick return, just over a week, in pipeline deliveries on Energy Partners, L.P.’s Lakehead system after it was shut on Sept. 9 due to a leak pressured wholesale gasoline costs through today, especially in the Midwest.

Enbridge was forced to shut a key pipeline that carries crude oil from Canada to refineries in the Midwest after a leak was discovered in Romeoville, Illinois, earlier this month, triggering sharp increases in wholesale gasoline costs across the country. The pipeline was carrying 459,000 bpd of heavy crude oil at the time of the shutdown.

The pipeline outage, which some thought would last for two weeks, triggered heavy buying in Midwest markets for gasoline and diesel fuel on worries of potential lost supply. The buying strength reverberated to other markets nationally, notably the heavy refining region along the Gulf Coast. Meanwhile, the financially-traded New York Mercantile Exchange Reformulated Blendstock for Oxygenated Blendstock futures contract, which offers a transparent price for gasoline nationally, rallied to a one-month high on supply constraint worries.

This buying in the wholesale arena pushed the U.S. retail gasoline average up 3.9 cents and off a six-month low to a $2.721 gallon one-month high at a time when gasoline prices typically decline.

View DTN’s Weekly and Historical Gasoline Price Index.

Wholesale gasoline costs have since moved lower with the pipeline’s restart, with gasoline in the Chicago market down more than 20 cents from the previous week, erasing its short covering push triggered by the line outage. Wholesale costs should continue their move lower near term based on lower driving demand following its peak period during the summer months.

While the trend is pointed down for wholesale gasoline costs, macroeconomic issues could mitigate the decline. Expectations that the Federal Reserve will deploy more quantitative easing in US monetary policy when it meets this week has analysts projecting a weaker US dollar, which would underpin support for higher crude prices.

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

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