Brian L. Milne, Refined Fuels Editor, Telvent DTN
Wholesale gasoline prices moved sharply lower during the third week of April, coming under heavy selling pressure as those in the market not hedging liquidated long holdings on growing sentiment that there will be enough supply this summer to avoid a tight market.
There were a handful of recent news events suggesting increasing supply availability in triggering the change in market sentiment that led to the selling, including potential buyers of two refineries in Pennsylvania that were slated for permanent closure. This news in particular drove down gasoline prices in open market trading that had been boosted sharply by fear of a tight supply-demand dynamic during the summer months in the heavily populated Northeast.
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The board of directors for Delta Air Lines has given the green light to management to acquire the Trainer refinery near Philadelphia, which is currently closed. ConocoPhillips closed the refinery in September 2011, citing heavy losses at the facility that can process up to 185,000 barrels per day (bpd) of crude oil. Delta is looking to cut its jet fuel bill, with the company reportedly to work with J.P. Morgan to finance operations at the facility.
Today (4/23), Sunoco, Inc. said it would delay the planned closure of its 330,000 bpd Philadelphia refinery from July to August after entering into exclusive discussions with The Carlyle Group, a global alternative asset manager, regarding a potential joint venture. There is no guarantee that a deal will be reached, and Sunoco said it would idle processing units in August one is not consummated.
“We are working actively with Sunoco and other stakeholders to explore ways to keep this vital facility operating. The facility has been operating at a significant loss for some time, and we are exploring every avenue to create a viable plan,” said Rodney S. Cohen, managing director of The Carlyle Group.
Sunoco’s 178,000 bpd Marcus Hook refinery located just outside of Philadelphia was shut in December 2011 with no plans in restarting the facility.
In addition to this news, was an earlier than expected start date for a reversed Seaway Pipeline. The pipeline will carry oil from Cushing, Oklahoma to Freeport, Texas, unlocking the important supply hub at Cushing which serves as the delivery location for the New York Mercantile Exchange light sweet crude futures contract.
Rapid growth in both heavy tar sands from Canada and light shale oil from the Midcontinent have swelled supply at Cushing, which does not have pipeline takeaway capacity to the Gulf Coast. The Seaway Pipeline will provide an initial 150,000 bpd of takeaway capacity to the Gulf Coast as early as May. This pressured oil prices as traders repositioned on the news.
Also, global oil prices moved lower on easing concern over potential supply disruptions from Iran amid ongoing talks between Iran and six world powers regarding the country’s pursuit of a nuclear capability. The discussions, with the next meeting scheduled for May 23 in Baghdad, has reduced the market’s opinion of an imminent strike by Israel against Iran’s nuclear facilities that was seen sparking a response by Iran that could have drastically cut global oil supply.
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]