Gasoline Futures Soar on Refinery Troubles and Low Imports

Buenas noticias para VLO: Problemas con refinerías e importaciones en mínimos de dos años mantienen la oferta de gasolina escasa y los precios al alza (+50% desde el 18-ene). Ya van seis informes de inventarios consecutivos en los que bajan las reservas de gasolina...

On a tear since mid-January, U.S. gasoline futures show no sign of slowing down, with refinery outages and low imports keeping supplies tight and traders gearing up for looming strong demand with the onset of the summer driving season.

Gasoline stockpiles have slipped in each of the past six U.S. government oil inventory reports, as refinery problems and seasonal maintenance hamper production at a time when imports are near two-year lows. That's pushed futures on the New York Mercantile Exchange up over 50 percent since Jan. 18, lending a layer of support under crude oil prices in the process.

The rally in futures has already helped push pump prices higher, though analysts say U.S. drivers won't see the kind of record retail prices seen in the wake of Hurricane Katrina in 2005. They expect about a further 10 percent run-up in futures prices, which should keep pump prices below $3 a gallon, before refineries start to churn out more gasoline in time for the summer.

Supply concerns are behind the rally, with some refineries around the country out of action due to technical or safety problems at a time when many are, in any case, undergoing seasonal maintenance. U.S. refinery utilization was at 86.3 percent of capacity as of March 16, the lowest for this time of the year since 2002, according to government data.

"At this time of the year, we should be in the low 90s. It looks like gasoline prices will run higher," said Edward Meir, an analyst with brokerage Man Financial in New York. "We're seeing draws in gasoline stockpiles week after week, and there are still refinery concerns -- every time one comes back on, another seems to go down."

The latest glitch in the seasonal ramp-up in gasoline production before the summer was a fire at BP PLC's giant oil refinery in Whiting, Ind., which is expected to shut key gasoline-producing units for between four and six weeks. The BP problems follow a mid-February fire at Valero Energy Corp.'s McKee refinery in Sunray, Texas, which put the 158,000 barrels-a-day refinery off line completely until April. The refinery will only be able to ramp up to about 70 percent capacity, where it will stay until the end of the year.

The two fires, along with a host of smaller unplanned outages have exacerbated a supply shortage expected amid the normal seasonal maintenance-related downturn in production.

Meir predicts futures for reformulated gasoline blendstock for oxygenate blending, or RBOB, to peak at between $2.20 and $2.25. Prices hit a seven-month closing high of $2.073 a gallon Tuesday.

Gasoline prices normally run up before the summer, but this year they started their rise about a month early, given an additional lift from rising crude oil prices, strong winter heating oil and gasoline demand and early refinery maintenance. Adding to pressure on inventory levels, U.S. gasoline imports have languished, despite higher prices. In the four weeks to March 16, imports averaged their lowest for a four week period for more than two years.

"I don't see any quick cap being placed on gasoline prices in the next few weeks," said Tim Evans, an oil analyst at Citigroup in New York. "You still have refinery throughput at relatively low levels and there are big questions in terms of imports."

Despite reports that European gasoline is being sent to the U.S. to chase higher prices, it is yet to show up in inventories in New York, where most imports arrive, partly because of strikes and seasonal maintenance. Europe, which is becoming decreasingly dependent on gasoline as a motor fuel, generally exports a large proportion of its production.

A French port-workers' strike has led some refiners to cut back on production and could affect seven refineries with a total of nearly 1 million barrels a day of refining capacity, or 7 percent of Europe's total. The strike comes at the start of Europe's refinery maintenance season, which is expected to cut more than 6 percent of total capacity between March and June, according to Hootan Yazhari, an analyst at Merrill Lynch.

"With much of this capacity being coastal (i.e. geared to export products from Europe to the U.S., Africa and the Middle East), the outages could provide support to product markets outside of Europe," Yazhari said in a research note.

Despite dwindling supplies, analysts expect the tightness to ease and most are forecasting U.S. gasoline futures will peak before June at around $2.30 a gallon, well-below RBOB's $2.505 peak in May 2006. At $2.30, average U.S. gasoline pump prices should stay below $3 a barrel, a level they crossed in each of the past two years.

"It's a charade we have every year: The market sees falling gasoline stocks and bids prices up" before refineries come out of maintenance, said Stephen Schork, publisher of the daily energy and shipping newsletter, The Schork Report. "They will then be making copious of amounts of gasoline for the summer driving season" and taking advantage of higher gasoline prices, which will in turn bring prices lower.