Bloomberg News

Gasoline Jumps to Four-Month High as Plant Closures Trim Supply

January 26, 2012

Jan. 25 (Bloomberg) -- Gasoline surged to the highest level since September on speculation that refinery closures and production unit shutdowns will reduce inventories of the motor fuel on the U.S. East Coast.

Futures rose as Hess Corp. said today it may shut the fluid catalytic cracker at its gasoline-making Port Reading refinery in New Jersey for repairs. Two Pennsylvania refineries have shut, as well as a refinery in the Virgin Islands that serves the Eastern U.S.

“With St. Croix out and possibly the Hess refinery, we could see 800,000 barrels a day of capacity not here in the spring and that’s what I think is underpinning the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Gasoline for February delivery rose 2.88 cents, or 1 percent, to settle at $2.8338 a gallon on the New York Mercantile Exchange.

Preliminary volume in electronic trading for gasoline was 159,803 contracts as of 3:07 p.m. in New York, 28 percent above the three-month average. Open interest increased yesterday to a record 338,176 contracts. The previous record was 332,977 contracts set on April 15, 2010, Chris Grams, a spokesman for Nymex parent CME Group Inc., said in an e-mail.

Hess said yesterday that the catalytic cracker, which makes gasoline for the New York area, is malfunctioning. Hess will continue to operate Port Reading “as long as it generates acceptable financial returns,” Jay Wilson, vice president of investor relations in New York, said in an interview yesterday.

Supported by Shutdowns

“Gasoline is supported by the recent refinery shutdowns in the Northeast, Hovensa’s refinery in St. Croix and refinery shutdowns in Europe,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. Closing that refinery could mean losing as much as 50,000 barrels a day of gasoline, said Lipow.

The Energy Department reported today that U.S. refineries operated at 82.2 percent last week, an eight-month low. Gasoline production was reduced by 2.8 percent to 8.54 million barrels a day, the lowest level since February 2010.

New York Harbor is the delivery point for reformulated gasoline blendstock, or RBOB, and heating oil futures on the New York Mercantile Exchange. That region is already facing potential supply tightness after the shutdown of two Pennsylvania refineries by Sunoco Inc. and ConocoPhillips.

Hovensa LLC, a partnership of Hess Corp. and Petroleos de Venezuela SA, said on Jan. 18 it will shut the 350,000-barrel-a- day St. Croix refinery in the U.S. Virgin Islands by mid- February because the plant is losing money. That refinery supplies products to the U.S. East Coast.

February-delivery heating oil fell 0.5 cent to settle at $3.0192 a gallon on the exchange.

Distillate inventories declined 1.7 percent last week to 145.5 million barrels, according to department data. It was the largest loss since the week ended Nov. 4.

Regular gasoline at the pump, averaged nationwide, fell 0.2 cent to $3.379 yesterday, according to AAA data. Prices were 8.6 percent higher than a year earlier.

--With assistance from Paul Burkhardt and Aaron Clark in New York. Editors: David Marino, Charlotte Porter

To contact the reporter on this story: Barbara J Powell in Dallas at bpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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