Bloomberg News

Gasoline Profit Seen Gaining in U.S. as Refineries Shut

February 12, 2014

The profit from making gasoline may more than double in the New York region through April as refinery maintenance cuts production and stockpiles.

Repairs will peak in March with 1.8 million barrels a day offline, equal to 10 percent of U.S. capacity, according to data from Energy Aspects Ltd. and CIBC World Markets Inc. That will help boost margins to $9 a barrel in April, from $3.30 this month, says Wood Mackenzie Ltd., an energy consultant. Suncor Energy Inc. (SU) should benefit as it keeps plants operating through the spring.

Most of the work will happen just as suppliers prepare to stock up on higher-quality fuel before the summer driving season. Gasoline demand averaged 454,600 barrels a day, or 5.3 percent, more in April than in January over the past five years. Retail prices may reach $3.75 a gallon this spring, from $3.307 on Feb. 10, according to AAA.

“We’re going to see a shortfall of gasoline in early spring,” Tom Finlon, the director of Energy Analytics Group Ltd., said by phone from Jupiter, Florida. “That’s a reason to be optimistic about gasoline margins.”

Gasoline futures settled yesterday at $2.7526 a gallon on the New York Mercantile Exchange, down 0.8 percent this year. That compares with a 7.4 percent gain in the period from the end of 2012 to Feb. 11, 2013.

Higher Margins

On the Gulf Coast, Wood Mackenzie is projecting $13 a barrel in April from $6.30 this month, based on Light Louisiana Sweet crude, the regional benchmark. ESAI Energy LLC estimates April margins will be $11.75 a barrel.

U.S. refiners typically begin to switch over to summer gasoline in March or early April before terminals change by May 1. Summer-grade fuel has a lower vapor pressure, limiting emissions that normally increase with warmer weather and cause unhealthy ground-level ozone, according to the U.S. Energy Information Administration and Environmental Protection Agency.

“The summer gasoline build is going to start later this year and may put refineries in a pinch before the driving season starts,” said Harold York, a principal analyst at Wood Mackenzie in Houston. “That will put some upward pressure on gasoline prices and help margins look a little better.”

Refiners can’t use as wide a range of components to blend the fuel, which combined with higher demand during the peak driving season between Memorial Day in late May and Labor Day weekend in early September tends to boost retail prices.

Summer Gasoline

Regular gasoline at U.S. pumps averaged 31.4 cents a gallon more in July than in January from 2009 to 2013, according to Heathrow, Florida-based AAA. Retail prices rose in March in four out of the past five years and may peak at $3.75 a gallon this spring, compared with $3.79 in 2013, the nation’s largest motoring group said.

Stockpiles of gasoline were 235 million barrels in the week ended Jan. 31, the highest level for the time of year since 2011 and 0.4 percent higher than a year ago, government data show. Supplies have declined an average of 15.8 million barrels in February, March and April in the past five years.

Along the Gulf Coast, Motiva’s Convent, Louisiana, refinery began maintenance on units last week. The company began carrying out work Jan. 31 on a hydrocracker and naphtha hydrotreater at its Norco plant, also in Louisiana. The two sites have the ability to process a combined 505,000 barrels a day, according to data compiled by Bloomberg.

Above Average

Phillips 66 (PSX:US)’s Alliance site, also in Louisiana, plans to start work in early March on 10 areas including a crude unit, a delayed coker and a catalytic reformer. The coker and reformer are key for producing gasoline, with the coker breaking down heavy fuel oil into lighter products, and the reformer making high-octane blendstocks needed for summer-grade fuel.

At about the same time, Valero Energy Corp. (VLO:US)’s Corpus Christi, Texas, refinery is planning to shut a crude unit and hydrocracker for three weeks of maintenance.

Shutdowns on the Gulf Coast are estimated by IIR Energy to be about 100,000 barrels a day more than the average over the past five years, reducing demand for crude at a time when U.S. output is close to the highest since 1988.

Suncor, which operates three refineries in Canada and one in Colorado, has no major work planned until 2016, the company said in a conference call on Feb. 4.

Peak Maintenance

U.S. Gulf Coast crude consumption may fall toward 7.5 million barrels a day, Energy Aspects Ltd. forecast in a Jan. 13 report. Refiners in the Gulf processed 7.75 million barrels a day in the week ended Jan. 31, down from a record 8.6 million in the period ended Dec. 20, EIA data show.

“We seem to be picking up more and more work as we move into the quarter,” said Robert Campbell, New York-based head of refined products research at Energy Aspects. A lot of the maintenance is the Gulf Coast area and seems heavier than people were expecting, he said.

Maintenance on the Gulf Coast is forecast to peak in late February or early March, with about 1.21 million barrels a day of crude distillation capacity shut for work, according to Katherine Spector, CIBC’s head of commodity products research in New York.

From January through March, work on the Gulf will take an average of 628,000 barrels offline, almost 22 percent above the five-year average, according to IIR, an energy information company in Sugar Land, Texas. Nationwide, shutdowns will average 864,000 barrels, 3.7 percent below average.

Pipeline Capacity

The concentration of work along the Gulf will come as TransCanada Corp. (TRP)’s Gulf Coast pipeline increases shipments of crude to Port Arthur, Texas, from Cushing, Oklahoma. The initial capacity of the line, which began operating around Jan. 22, was about 300,000 barrels a day, according to the company.

That may drive a rebound in Gulf Coast crude inventories, which jumped by 3.44 million barrels to 169.8 million in the week ended Jan. 31. That compares with a four-year high of 197.2 million barrels on Oct. 25.

U.S. crude production reached 8.16 million in January, the highest since July 1988, as horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies trapped in shale formations such as the Eagle Ford in Texas and the Bakken in North Dakota.

Offshore production may rise in the same period after Royal Dutch Shell Plc announced the start of production from a new platform, Olympus, its largest floating deep-water platform in the U.S. Gulf of Mexico.

East Coast

Along the U.S. East Coast, where Nymex gasoline futures are delivered, Philadelphia Energy Solutions’ 355,000-barrel-a-day Philadelphia refinery is carrying out maintenance on a crude unit and catalytic cracker.

Irving Oil’s 298,800-barrel-a-day Saint John plant in New Brunswick, which sends about half of its fuel output to the U.S. Northeast, plans to shut some units for work in March.

Unscheduled outages coinciding with the seasonal work may further cut capacity and supplies, causing prices to rise, according to Chris Barber, a senior analyst at ESAI Energy LLC in Wakefield, Massachusetts.

“Any unscheduled issue is going to have a big impact on pricing,” he said.

To contact the reporters on this story: Christine Harvey in New York at charvey32@bloomberg.net; Eliot Caroom in New York at ecaroom@bloomberg.net

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


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Companies Mentioned

  • PSX
    (Phillips 66)
    • $81.11 USD
    • -0.61
    • -0.75%
  • VLO
    (Valero Energy Corp)
    • $50.8 USD
    • 0.74
    • 1.46%
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