CSD Exclusive: Sandy Reversing Lower Trending Gasoline Costs

Gasoline demand will suffer dramatically due to Hurricane Sandy, with motorists in affected areas told—in some cases ordered—to stay off the roads.  

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

Hurricane Sandy drove higher wholesale gasoline prices on Oct. 26 on worries over the storm effects, continuing the advance early Monday (10/29) ahead of its expected landfall sometime in the afternoon in southern New Jersey, with northern New Jersey part of the important New York Harbor market.

New Jersey Governor Chris Christie has declared a state of emergency for the Garden State, with forecasts calling for all of New Jersey to be engulfed by the massive once in a century storm, while a storm surge is expected to swamp Lower Manhattan, the location of the New York Mercantile Exchange headquarters.

Floor trading at NYMEX has been closed for Monday, with expectations for the floor to remain shut through at least Tuesday depending on the effect of this monster storm.

Phillips 66 on Sunday began shutting its 238,000 bpd Bayway Refinery in Linden, N.J., the second largest refinery along the East Coast, with its terminals in Linden, and Tremley Point, N.J., and at Riverhead, N.Y. also shut or in the process of closing. Hess was also shutting its 70,000 bpd Port Reading refinery in N.J., located in the southern part of the New York Harbor.

Philadelphia Energy Solutions was operating its 330,000 bpd Philadelphia refinery at reduced rates early Monday, and trade sources reported that PBF Energy was also running operations at a lower rate at Paulsboro, N.J., 160,000 bpd capacity, and at the 182,000 bpd Delaware City refinery in Delaware.

Other area facilities likely to be affected include Delta Airline’s 185,000 bpd Monroe refinery in Trainer, Pa., and United Refining Co.’s 70,000 bpd Warren, Pa., refinery.

The New York Harbor is the delivery location for the NYMEX RBOB and heating oil futures contracts, and also a major receipt point for imported gasoline. Some 92% of U.S. gasoline imports during the four-week period through Oct. 19 were received along the East Coast, according to the Energy Information Administration, which averaged 532,000 bpd. Meanwhile, NYMEX RBOB futures spiked more than 11.0cts in early electronic trading on Monday to a nearly two-week high on concern over supply disruptions.

U.S. gasoline supplies were rebuilding from four-year lows through October, including low supply levels for the New York Harbor market, with the restocking triggering a steep and late seasonal decline to a nearly four-month low. Hurricane Sandy is now reversing the lower trend.

Gasoline demand will suffer dramatically due to Hurricane Sandy, with motorists in affected areas told—in some cases ordered—to stay off the roads. That should sharply pressure wholesale gasoline costs once the storm passes, with U.S. gasoline demand already weak in 2012, trailing the 2011 pace by a sharp 3.8%.

While demand could very well erase the current rally in gasoline prices, a big factor in determining the near term price path for gasoline would be the extent of refinery outages and the potential damage, especially with regard to flooding.

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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