Gasoline Futures Jump as Frigid Air Causes Refinery Shutdowns

Jan 07, 2014 3:37 pm ET

Jan. 7 (Bloomberg) --Gasoline futures rose the most in two weeks as frigid temperatures triggered shutdowns at refineries from New Jersey to Louisiana.

Prices climbed for the first time in seven sessions. Instrument freezes, unit shutdowns and power losses were reported at refineries on the East Coast, Midwest and Gulf Coast representing 7.4 percent of U.S. processing capacity. Two sites, Marathon Petroleum Corp.’s Detroit plant and PBF Energy Inc.’s Paulsboro, New Jersey refinery, shut all or most units.

“The concern over some of the refinery issues we’ve seen as a result of the brutally cold climate across the continent has led to buying in the refined products,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York.

Gasoline for February delivery rose 3.26 cents, or 1.2 percent, to settle at $2.6786 a gallon on the New York Mercantile Exchange. Trading volume was 18 percent above the 100-day average as of 2:40 p.m. in New York.

The frigid air extends across the upper Midwest into the South and eastward to the Atlantic, said Tom Kines, a meteorologist with AccuWeather Inc. in State College, Pennsylvania. Today, New York’s high will struggle to reach 10 degrees, a day after Central Park hit 50. As of 8 a.m., it was 4 degrees in New York, breaking a record for the date set in 1896, AccuWeather said.

Extreme Cold

ExxonMobil Corp.’s Joliet, Illinois, refinery had unidentified problems with process units because of extreme cold, according to a filing with the National Response Center. Phillips 66 had an electrical issue at its Westlake plant in Louisiana, according to a regulatory filing. Korea National Oil Corp.’s site in Come-by-Chance, Newfoundland, is trying to restart after an island-wide power failure over the weekend, company spokeswoman Gloria Slade told CBC News.

Valero Energy Corp.’s Memphis, Tennessee, refinery was running most units following a system shutdown yesterday due to the cold, a person familiar with operations said. Total SA’s Port Arthur, Texas, plant returned units to normal after freezing weather conditions caused a loss of steam.

“Those issues are impacting the products,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “There will be delays in receiving supplies. But much of it is offset by the decline in demand due to the poor weather.”

Higher Demand

The cold is raising demand as drivers keep their vehicles’ tanks filled and leave engines running longer to warm up or while they shop, said Jeff Lykins, chief executive officer and president of Lykins Cos, a Milford, Ohio, integrated downstream petroleum marketer operating in 15 states from the Midwest to the Southeast. Lykins said heating oil demand has also jumped.

“The cold is causing so much business that the terminals are backing up,” Lykins said in a phone interview. “It’s just taking longer to get trucks loaded and turn trucks around. In Ohio, we got waiver of hours of service rules for drivers through Jan. 17.”

Mark Anderle, a trader at Truman Arnold Cos., a wholesaler based in Dallas, said his company has in some cases had to find alternative fuel sources in Tennessee and Mississippi where the cold disrupted the flow and interfered with instrument operation at the terminals.

“It’s a headache,” Anderle said.

The motor fuel’s crack spread versus WTI widened $1.13 to $18.83 a barrel. Gasoline’s premium to London-traded Brent crude climbed 75 cents to $5.15 a barrel.

“The crack spreads are particularly strong when you have concern about supply,” said Lebow.

The average U.S. pump price fell 0.3 cent to $3.314 a gallon, according to Heathrow, Florida-based AAA. Prices are 1.7 cents above a year earlier.

Ultra low sulfur diesel for February delivery advanced 2.05 cents, or 0.7 percent, to $2.9593 a gallon. Volume was 26 percent above the 100-day average.

Diesel’s crack spread versus West Texas Intermediate crude, a rough measure of refining profitability, widened 60 cents to $30.62 a barrel. The premium over European benchmark Brent gained 24 cents to $16.94.

--With assistance from Brian K. Sullivan in Boston. Editors: David Marino, Dan Stets