By Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline prices for the week-ended Jan. 30 were sharply higher in most major metropolitan markets across the U.S. , with those costs pushed up by a string of refinery closures due to economics and unscheduled repairs.
On Friday (1/27), the New York Mercantile Exchange RBOB (Reformulated Blendstock for Oxygenate Blending) futures contract spiked to a five-month high on reports in trading circles that a gasoline making unit at ConocoPhillips Bayway refinery in New Jersey was shut due to a malfunction.
Trade sources reported a fluid catalytic cracker outage at the 238,000 barrel per day (bpd) Bayway refinery, situated in northeast N.J. in Linden. The report, which wasn’t confirmed or denied by ConocoPhillips, came on the heels of a series of announced refinery shutdowns impacting the New York Harbor region, which is the delivery location for the RBOB futures contract.
At one point the RBOB contract, which serves as the U.S. benchmark in setting gasoline prices, shot up more than 12 cents on the news.
View Telvent DTN’s Weekly and Historical Gasoline Price Index.
The outage at Linden followed an unconfirmed report earlier in the week that Hess shut its 70,000 bpd FCC at Port Reading, N.J., with the potential for the gasoline unit to be offline for as many as three weeks.
Gasoline demand is weakest in January and February, with the preliminary data showing the gasoline consumption rate weaker than usual. Meanwhile, refining capacity is operating in the low 80% of overall capacity, with the Energy Information Administration (EIA) detailing an 82.2% run rate for the week-ended Jan. 20, the most recent data available. So, these outages shouldn’t have had as big an effect on gasoline wholesale costs as they did.
However, the unplanned outages are occurring in the midst of a consolidation of refining capacity for the Mid-Atlantic and in Europe, while a refinery in the US Virgin Islands will shut permanently.
Earlier in January, Hess announced that it was shutting its HOVENSA refinery in St. Croix in mid-February due to mounting losses that have totaled $1.3 billion over the past three years, with no end in sight to the fiscal bloodletting. HOVENSA, a gasoline supplier to the East Coast, at one time had a 500,000 bpd processing capacity, but retooled operations that dropped throughputs to 350,000 bpd.
Additionally, Petroplus, Europe’s largest independent refiner with five facilities and a 667,000 bpd crude processing capacity, announced on Jan. 24 that it was insolvent and filing for bankruptcy. The company was already forced to shut three of the refineries at the start of the year due to a lack of funds to sustain operations, and announced that the other two plants would also be shut.
Europe typically exports gasoline to the U.S., with the New York Harbor the country’s largest receipt point for imported gasoline. In addition to the likelihood that tightening supply availability will reduce gasoline imports to the U.S., there’s the potential for tight supply across the Atlantic to lure U.S. exports.
Ahead of these events, ConocoPhillips announced in 2011 that it would permanently shut the 185,000 bpd Trainer refinery near Philadelphia, Pa., with the plant now shut and headed for demolition if a buyer is not found by the end of February. Sunoco has shut its 178,000 bpd Marcus Hook refinery near Philadelphia, with no plans to restart the facility, and will end operations at its 335,000 bpd Philadelphia refinery in the summer. Sunoco, which is exiting the refining business, is looking for buyers for those plants.
The cumulative effect of these planned and unplanned outages was to rally gasoline prices, setting the stage for higher retail prices not just now, but also during the summer months when driving demand peaks.
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 [email protected]