Wholesale Gasoline Costs Slide as Supply Tightness Eases

Brian L. Milne, Refined Fuels Editor, Telvent DTN

Wholesale gasoline costs were lower in most metropolitan markets across the U.S. coming into the final full week of October, pressured by rebuilding gasoline supply as refinery processing ramps up after a series of unexpected outages had propelled gasoline costs sharply higher.

The total domestic gasoline inventory level had tumbled to a four-year low at 195.4 million barrels as of Oct. 5 according to the Energy Information Administration (EIA), drawn down in 10 of the 11 weeks through Oct. 5. During the following week through Oct.12, U.S. gasoline supply added 1.7 million barrels, with regional stock changes mixed.

The Midwest region saw a drawdown while wholesale costs were mixed, while tight supply in the New York Harbor market eased, with EIA data showing gasoline along the East Coast building by 1.7 million barrels.

Gasoline supply along the East Coast, namely the Northeast and upper Mid-Atlantic regions had run at lower than usual levels due to lost refining capacity for the region. Sunoco permanently shut its Marcus Hook refinery located near Philadelphia, Pa., at year-end 2011, while the Trainer refinery also situated near Philadelphia was shut for much of the year.

ConocoPhillips sold the Trainer refinery to a subsidiary of Delta Air Lines, with the refinery shut for several months to allow for work in retooling the plant to produce more jet fuel. The refinery restarted in September, and was gradually ramping up output.

Joined by the permanent closure of the HOVENSA refinery in St. Croix in February, which exported most of its offtake to the East Coast, the lost refining capacity had a cumulative effect in keeping New York Harbor gasoline supply tight, which was drawn down to a four-year low.

During the second full week of October, refining output for the region ramped up. EIA showed a sharp 5% jump in East Coast refinery utilization, with the run rate climbing to 89.9% of capacity. That’s a one-month high, and the second highest utilization rate for the region since July 2010.

Along the West Coast, low gasoline supplies can be traced all the way back to February, when a fire at BP’s Cherry Point refinery in Washington, caused a three-month shutdown. Several outages since, including the early August explosion and fire at Chevron’s Richmond refinery in California, with the crude unit shut for the rest of the year, and the Oct.1 loss of ExxonMobil’s Torrance refinery in California due to a power outage. Although the Torrance refinery outage was brief, it was the proverbial last straw that spiked gasoline prices in California to an all-time high.

The rebuilding supply and returning refining capacity combined with the seasonality for gasoline to move lower after summer delayed this year by the string of outages across the country.

In futures trade, New York Mercantile Exchange November RBOB futures tumbled to a nearly four-month low on the spot continuation chart after erasing 19.65 cents or 6.8% of its value the week-ended Oct. 19. The downturn in wholesale costs will be passed through the supply chain to retail outlets, pressuring retail gasoline prices in the coming weeks.

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 16 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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