Monday, Oct 29, 2012
By John M. Biers and Ben Lefebvre
Gasoline futures soared as much as 4.2% higher during trading Monday as several East Coast oil refineries shut down or reduced operations due to Hurricane Sandy. The refinery disruptions raise a concerns about possible shortages of the motor fuel, traders and analysts said.
Refiners on the East Coast have started shutting down or reducing operations in anticipation of Sandy's lashing winds and heavy rains. Those precautions have reduced the region's fuel production by two-thirds, according to analyst firm Tudor Pickering & Holt. About 6.5% of the total U.S. refining capacity is near the region in Sandy's forecast path, according to the U.S. Energy Information Administration.
"What we're seeing is the real concern from this storm in the storm surge" and possibly significant damage to refineries, said AAA spokesman Avery Ash.
The immediate effect of the storm is higher gasoline futures. On Monday, gasoline futures were up as much as 11.2 cents at 2.811 a gallon, before drifting lower to being up 4.74 cents, or 1.8%, higher to $2.747 per gallon in midday trading. By comparison, crude oil futures, the main feedstock which refiners use to make gasoline, was down 46 cents, or 0.5%, lower to $85.82 per barrel.
The rise in futures prices has yet to trickle down to consumers along Sandy's path. Gasoline prices Monday in New Jersey fell from $3.6002 per gallon Sunday to $3.600 per gallon, according to AAA's Fuel Gauge index. Prices in Delaware dropped from $3.575 per gallon Sunday to $3.563 per gallon Monday. And prices in metropolitan New York fell from $3.865 per gallon Sunday to $3.858 per gallon Monday.
PBF Energy on Monday became the latest refiner to reduce rates, saying it was cutting operations by an unspecified amount at a 180,000 barrel-a-day refinery in Paulsboro, N.J., and a 190,000 barrel-a-day refinery in Delaware City, Del.
The PBF news follows earlier announcements by Phillips 66 that it was shutting its 238,000 barrel-a-day Bayway refinery in New Jersey and that Hess Corp. (HES) would reduce rates at its 70,000-barrel-a-day refinery in Port Reading, N.J., by an unspecified amount. Some other East Coast refineries have said so far that their plants are running at normal levels.
Analysts said it was still too soon to gauge the more lasting medium-term effect of Sandy on gasoline markets. While the loss of significant refining capacity will pinch supplies, the reduced refining capacity is counteracted by the loss of an estimated one-two million barrels per day of reduced gasoline demand due to less driving due to the storm in the Northeast, Mr. Ash said.
"You're talking about a huge portion of America's motoring public that could be keeping off the road for the next several days," Mr. Ash said
Even with the lower gasoline production, analysts said the greater concern is that one or more of the plants could sustain lasting damage due to storm surge or heavy winds.
"The worst-case scenario has become closer to becoming a potential reality," said Matt Smith, analyst at Summit Energy. "It depends on what we see with power outages--all it would take would one of these big refineries to go down" for gasoline prices to stay high.
Besides gasoline, another concern for the market is the potential hit to heating oil production if one or more of the refineries is damaged in the storm, said Addison Armstrong, director of market research for Tradition Energy, a brokerage firm. Mr. Armstrong noted that heating oil supplies are well below the five-year average.
"Certainly if we were to have a big power outage hitting refinery restarts, we could expect to have a big run-up in heating oil," Mr. Armstrong said.
-Write to John M. Biers at john.biers@dowjones.com
(END) Dow Jones Newswires
October 29, 2012 13:23 ET (17:23 GMT)
