FCC Outages Point to Higher Gasoline Prices in June

By Brian L. Milne, Energy Editor, Schneider Electric

A trio of unexpected gasoline producing unit outages in Illinois, Wyoming, and Kansas, atop of already low supply in the Midwest spiked regional gasoline prices to start out the second half of May, and in front of Memorial Day in what is known as the kickoff to the summer driving season.

HollyFrontier on May 15 announced unplanned downtime for the fluid catalytic cracking (FCC) units at its 52,000 barrel per day (bpd) Cheyenne, Wyo., and 135,000 bpd El Dorado, Kan., refineries, with the outages seen lasting for 10 days. CITGO, according to trade sources, also experienced an unplanned FCC outage at its 167,000 bpd Lemont, Ill., refinery at roughly the same time, with the outage potentially lasting for 10 days and to result in the loss of 350,000 bbl of gasoline production.

The FCC is a gasoline producing unit.

The outages have occurred when gasoline production in the Midwest was already low, at 79.7% of PADD 2 capacity as of May 10 per the Energy Information Administration (EIA), amid such activity as BP’s Modernization Project at its 413,000 bpd Whiting refinery in Indiana, to allow the facility to process heavy crude oil. EIA data shows gasoline supply in PADD 2 at a 23-year low.

Gasoline prices in the Oklahoma Group 3 and Chicago spot markets spiked on the news, as traders looked to secure supply amid the outages and ahead of the coming three-day Memorial Day weekend.

View Schneider Electric’s Weekly and Historical Fuel Price Index.

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In the broader market, consumer sentiment in May surged to a six-year high, according to the University of Michigan’s consumer sentiment index released on May 17, which sparked a rally in equity and oil markets alike on heightened optimism for the US economy and fuel demand.

The sentiment index dovetails with the Consumer Fuels Survey conducted May 7-17 by the National Association of Convenience Stores (NACS) that found consumers are more optimistic over the U.S. economy, and ready to spend more. The survey shows 85% of those taking vacation this summer planning to do so by vehicle. Of retailers, 61% of those surveyed expect greater gasoline demand this summer than during the 2012 summer, with lower gasoline prices and a brighter outlook for the economy two features supporting their view. So far, 39% of those retailers said gasoline sales at their stores have increased from a year ago.

That survey percentage jives with the most recent data from the Federal Highway Administration that showed Americans drove 3.7 billion or 1.5% fewer miles in March than they did during the corresponding period in 2012. The FHA, an agency within the U.S. Department of Transportation, said cumulative travel for the first three months of 2013 was an estimated 690.3 billion miles, a decline of 5.6 billion miles or 0.8% versus the comparable 2012 period.

Sentiment could change if retail gasoline prices move to high, retarding demand. The EIA’s retail price average for all formulations of regular grade gasoline jumped 6.5 cents during the week-ended May 13 to a $3.603 gallon five-week high.

About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a leading business-to-business provider of real-time commodity information services among many other activities. Milne has been focused on the energy industry for 17 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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