By Brian L. Milne, Energy Editor, Schneider Electric
A string of outages at refineries in California during the first week of September spiked spot gasoline prices in the state with those costs to be passed through the supply chain to retail outlets, pushing pump prices there higher despite a lower trending New York Mercantile Exchange futures market for gasoline.
NYMEX Reformulated Blendstock for Oxygenate Blending gasoline futures slumped to a two-month low Sept. 9, pressured by the transition away from seasonal strength during the summer months, with gasoline demand historically lower in September from August while refiners switch to higher Reid vapor pressure gasoline that is less costly to process than summer grades.
US wholesale gasoline costs were mixed overall in beginning the second week of September, with California costs up more than a dime. In contrast, wholesale gasoline costs moved lower along the East Coast and Midcontinent regions, including steep declines in the upper Midwest.
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In California, gasoline cash differentials surged on industry reports four regional refineries encountered operational issues. Valero confirmed its 72,000 BARRELS PER DAY (bpd) fluid catalytic cracking unit at the company’s 170,000 bpd Benicia refinery shut down for repairs to be made to an air blower, with no return time estimated for the unit. An FCC produces gasoline.
Trade sources said the FCC at Tesoro’s 166,000 bpd Golden Eagle refinery in Martinez was operating at reduced rates after a mechanical issue prompted the shutdown of the alkylation unit. A Tesoro spokeswoman confirmed unscheduled maintenance was taking place at the refinery, but declined to provide any details of the work including the estimated length of the repair.
Trade sources also reported that Shell had sporadic issues at its refinery in Martinez, while Phillips 66 reported flaring Sept. 5 at its Los Angeles area refinery due to a break down in the wet gas compressor. On Sept. 7, the refinery suffered a power outage at its FCC unit.
Those outages will support higher gasoline prices in the state near term.
The Department of Labor’s nonfarm payroll report for August released Sept. 6 was disappointing, showing fewer jobs created during the month than expected, while the department also revised down new job totals for June and July by 74,000. Still, the national unemployment rate unexpectedly ticked down 0.1% to 7.3%, lowered as more people dropped out of the labor force. The labor participation rate tumbled to its lowest level since 1978.
High unemployment is linked to less gasoline demand, so the decline in the national rate should be a good signal for those selling gasoline. However, the decline in the participation rate in the US job market suggests there are less overall miles driven to and from work.
The jobs report is seen by some analysts prompting the Federal Reserve to delay paring back stimulus efforts designed to reduce the number of unemployed, underpinning upside support for oil prices.
The oil market is closely watching affairs surrounding the better than two-year civil war in Syria, including a potential US military strike for the Syrian regime’s use of chemical weapons on its own people Aug. 21. President Barack Obama has sought Congressional authorization for such a strike, although winning such support has been an uphill battle.
There are many unknowns surrounding Syria whether the US bombs the regime or not, including potential retaliatory attacks by Syria and its Iranian and Hezbollah allies, potentially expanding the conflict to the broader Middle East. This uncertainty helped underpin a rally by NYMEX WTI crude futures to a $110.46 bbl 28-month settlement high on the spot continuation chart Sept. 6.
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 [email protected]