U.S. consumers facing the highest gasoline pump prices ever for February may see further increases as global crude oil futures climb and breakdowns and seasonal maintenance at refineries reduce fuel supplies.
Gasoline futures have surged 11 percent this year, making the fuel the top performing commodity in the Standard & Poor’s GSCI index. Prices at the pump are up 14 percent this year and have risen 33 straight days, according to AAA data. Brent crude in London, the pricing basis for gasoline imports and for oil used by coastal refiners, advanced to a nine-month high Feb. 8.
Unit breakdowns and seasonal repairs reduced refinery processing by 8.3 percent since mid-December, cutting fuel production, Energy Information Administration data show. Regular gasoline has jumped 45.6 cents this year, the fastest increase in AAA data back to 2005. Prices may peak earlier than they did last year, according to Avery Ash, a spokesman for AAA, the nation’s largest motoring organization.
“What’s driving the price up is the fear we might not have enough supply,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “It’s a national concern.”
Gasoline for March delivery advanced 1.79 cents to $3.3145 a gallon on the New York Mercantile Exchange Feb. 15, the highest settlement since Sept. 28. Futures slipped to $3.111621 at 12:06 p.m. Tuesday. Brent crude on ICE Futures Europe exchange has increased $5.73 this year to $116.69 a barrel.
The average nationwide pump price gained 1.8 cents to $3.748 a gallon, 19.2 cents higher than a year ago, AAA said on its website today. In 2008, when prices reached an all-time high of $4.114, regular gasoline cost $3.032 on Feb. 18.
“We have sustained higher crude prices and concern also about refinery capacity,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania.
Seasonal maintenance typically peaks in March and April, boosting speculation that inventories may dwindle just as demand picks up in May when U.S. drivers head off on vacation. Hedge funds increased net-long positions in gasoline futures to 90,120 contracts of futures and options in the week ended Feb. 12, the most since April, the Commodity Futures Trading Commission reported Feb. 15.
An average of 1.5 million barrels a day of refining capacity will be offline for planned work from January through May, according to Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research consulting company in London. The outages will peak in March at over 2 million barrels a day, Sen estimated.
Prices climbed as high as $3.936 last year in early April, according to Heathrow, Florida-based AAA.
“Gas prices are rising at a faster-than-expected pace,” Ash, an AAA spokesman in Washington, said in an interview today. “There’s reason to suspect the peak we see will be earlier this year. We still expect they will peak at a lower level than in 2012,” but they may approach that level, he said.
The EIA revised its forecast for 2013 gasoline prices up to $3.55 a gallon Feb. 12, from a $3.44 estimate in January.
The jump in gasoline futures has swelled the crack spread, a measure of refining profit. April-delivery gasoline’s premium versus Brent was $21.85 a barrel, 53 percent higher than a year ago.
Schork predicts the retail average rise another 15 cents to 20 cents by the end of February. Prices then usually climb higher as the more-expensive summer-grade gasoline makes it way to the pumps in mid-spring.
Shutdowns across the country are increasing concern about supply availability and boosted wholesale gasoline prices.
On the East Coast, which includes New York Harbor, delivery point for the Nymex contract, Hess Corp. will close its Port Reading, New Jersey, plant later this month. It represents 7.7 percent of East Coast gasoline-making capacity, estimated Andy Lipow, president of Lipow Oil Associates LLC in Houston.
Philadelphia Energy Solutions shut the Girard Point section of its plant, the largest near the New York trading hub, in late January for 60 days of planned work.
BP Plc’s Whiting, Indiana, refinery, the biggest serving the Chicago market, won’t bring its 225,000-barrel-a-day crude unit back online until the middle of this year after shutting it in November to convert the unit to process Canadian crude, Chief Executive Officer Bob Dudley said in the company’s fourth- quarter earnings call on Feb. 5.
Gasoline in Chicago, after sinking to 47 cents below Nymex futures Dec. 18, was 2.75 cents under on Feb. 15, according to data compiled by Bloomberg.
“We’ve obviously seen crude prices rising over the last couple of months, and we’ve seen the switchover to summer-grade in the midcontinent and Midwest earlier than normal and that can cause the peak to come a little bit earlier in the year,” Ash said.
On the Gulf Coast, Motiva Enterprises LLC is shutting units for work at its Port Arthur, Texas, refinery, the largest in the U.S. The plant’s new 325,000-barrel-a-day crude unit, plagued with fires and leaks since its May debut, is running at about 80 percent of capacity. Conventional 87-octane gasoline jumped to parity to futures today from a 22-cent discount Feb. 5.
Refineries on the U.S. West Coast, including Valero Energy Corp.’s Wilmington and Tesoro Corp.’s Golden Eagle plants, have had to cut fuel production to repair equipment in the past two weeks. California-grade gasoline, or Carbob, in Los Angeles, was 31.5 cents over futures Feb. 15, from a discount of 5.5 cents Jan. 22.
Demand for the motor fuel is showing signs of improvement at the same time as refineries are slowing down. Deliveries of gasoline to wholesalers, was 4.4 percent above a year earlier in the four weeks ended Feb. 8, according to EIA data.
“Part of this rally was based on EIA stats showing gasoline demand for first part of 2013 is about 3.8 percent higher than the corresponding period last year,” Lipow said. “The preseason rally we normally see in April and May appears to be occurring in February this year. But the market has gotten way ahead of itself.”
The market may be forgetting that Colonial Pipeline Corp. is expanding its product pipeline from Gulf Coast refineries to the East Coast this money, easing supply bottlenecks on the more refinery-rich Gulf, Lipow said.
He also estimates that the addition of the new Motiva crude unit and the return to production of the Trainer, Pennsylvania, refinery after it was bought last fall by Delta Air Lines Inc. adds 500,000 barrels a day of processing capacity.
The crack spreads may also entice refiners returning from maintenance to ramp up output to capture profit.
“The plants are down right now,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “When they come back, particularly with these healthy margins, they’re going to want to produce full out so the rally is going to be blunted. It’s a matter of timing.”
If refiners are tempted to postpone repairs to capture margins and keep rates elevated for longer period, it could also lead to breakdowns, Schork said. “The incentive is there for maintenance being postponed because margins are nice and fat,” Schork said. “It gets into the question of the operational integrity of a system that is pushed to the limit.”
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