Gasoline Jumps to 2014 High as Repairs May Tighten Supply

Feb 07, 2014 5:16 pm ET

Feb. 7 (Bloomberg) -- Gasoline futures jumped 2.5 percent to a high for the year amid speculation seasonal maintenance and outages at U.S. refineries will tighten supply.

An average of 1.6 million barrels a day of capacity will be offline in February, according to Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. Another 1.4 million barrels in March and 850,000 barrels in April are scheduled to be shut for work.

“You’ve got a lot of maintenance now, the economy has been showing improvement and people are anticipating a strong summer,” Sen said.

March gasoline rose 6.59 cents to $2.7489 a gallon on the New York Mercantile Exchange, the highest settlement since Dec. 31. Trading volume was 45 percent above the 100-day average as of 3:17 p.m. Prices gained 4.6 percent for the week, the most since the seven days ended Dec. 20.

Futures have climbed an average of 4.3 percent in February and 10 percent in March during the past five years, according to data compiled by Bloomberg.

Phillips 66 is performing scheduled work at its Alliance plant in Louisiana, according to the company. Citgo Petroleum Corp. began shutting both plants at its Corpus Christi, Texas, refinery on Feb. 5 for about 35 days, a person with knowledge of the planned work said yesterday.

Gasoline Discount

Gasoline’s discount to March ultra low sulfur diesel futures was 31.34 cents, down from 40.06 cents on Feb. 3.

“If you take a broader view, this seasonally is a pretty good time for gasoline,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “Look at February and March. They’re usually stronger. We’ve got turnarounds coming up and gasoline had become too cheap relative to heat.”

The motor fuel’s crack spread versus West Texas Intermediate, a rough measure of refining profitability, widened 73 cents to $15.57 a barrel. Its premium to London-traded Brent crude climbed 39 cents to $5.88.

“People are plowing into gasoline and out of heating oil, looking ahead to gasoline season,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “Clearly, we’re seeing more length coming into the gasoline market.”

The average U.S. pump price fell 0.1 cent to $3.269 a gallon, according to data from Heathrow, Florida-based AAA. Prices have fallen 5.4 percent this year and are 28.6 cents below a year ago.

Tight Supply

Diesel was boosted as stockpiles tightened after frigid weather and winter storms disrupted production. Supplies of diesel and heating oil in PADD 1B, which includes New York, the delivery point for futures contracts, are the lowest since May 2003, according to Energy Department data.

Nationally, distillate stocks are the lowest seasonally in nine years.

“Distillate inventories are 12.2 percent lower than a year ago so here you have a tight market with strong demand that could tighten the market further,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

“Distillate stocks remain at exceptionally low levels and you have refinery maintenance so it will take time to rebuild stocks,” Sen said.

Ultra low sulfur diesel for March delivery advanced 5.52 cents, or 1.8 percent, to $3.0503 a gallon on trading volume 19 percent above the 100-day average. Prices fell 23 cents this week, making diesel the worst performer on the Standard & Poor’s GSCI commodities index.

--Editors: Dan Stets, Richard Stubbe