FocusFrench refinery strikes pump up US gasoline market

09 December 2010 17:31  [Source: ICIS news]

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By Sheena Martin

HOUSTON (ICIS)--Recent refinery strikes in France are largely responsible for the inflated price of gasoline in the US futures market as well as significant differences in US spot markets, analysts said on Thursday. 

“I blame the French, really,” said Phil Flynn, analyst with brokerage firm PFGBest. “They had the refinery strikes compounded by refinery problems. That is really the only reason that gasoline prices are rising when they should be falling around the world.”

From 1 October to 27 November, crude prices climbed 2.8%, while reformulated gasoline blendstock for oxygenate blending (RBOB) contracts jumped a much-higher 6.1%.

Flynn said that the price move for gasoline futures did not reflect ongoing US supply and demand patterns in which much of the nation is awash in record-high supply. Instead, the market took advantage of the unanticipated shortfall caused by the French strikes to rally prices higher.

“The movement in the NYMEX gasoline market in recent weeks exceeded the move in oil – both retail and spot price – so basically retail prices hit the highest level since 2008 [for the week ended 5 December],” Flynn said.

The French strikes created a need for fuel in Europe, which created uncertainty in the market. Investors grabbed on to that uncertainty and ran with it, he said.

US retail gasoline prices mirrored the contract trend, rising to an average of $2.917/gal on 6 December, according to the US Energy Information Administration (EIA). That was up 9.3% from the $2.668/gal average on 27 September, prior to the strikes.

Moreover, the increases were in contrast to historical trends. US retail rates often show seasonal weakness in the US autumn season following peak summer driving demand.

The French strikes also had a ripple effect on spot markets for the US Gulf and New York Harbor. Typically, prices for gasoline on the east coast are at a premium of 4-5 cents to US Gulf gasoline, owing to the 4.25-cent tariff to ship product up the Colonial Pipeline to the east coast. 

But refinery outages on the east coast, compounded by the lack of imports from Europe, led to tight supply. That widened the spread and moved New York Harbor prices higher.

“The New York Harbor had a few refinery issues, and a big refinery was down in Europe,” Flynn said.

ConocoPhillips had a fluid catalytic cracker (FCC) – the gasoline-producing unit – downed by a power outage on 25 October at its 238,000 bbl/day Linden refinery in New Jersey. The FCC remained down until 23 November.

In addition, Hess' 70,000 bbl/day refinery in Port Reading, New Jersey, was off line from 10 November until 19 November for a turnaround.

“The [New York Harbor to US Gulf] and gasoline to WTI [crude] price spreads did not begin rising until mid-November,” said EIA economist Tancred Lidderdale.

Furthermore, the strikes in France resulted in the shutdown or reduced capacity of 12 French refineries. The strikes began in September with the closure of the Fos-Lavera port in France, and refineries only began restarting around 29 October, following the conclusion of the strikes.

“Some of the buyers for lots of refineries were waiting for their ship to come in [with crude] and it never arrived, so they had to scramble in the spot market to get supplies,” Flynn said.

From 1 October through 29 November, prices for unleaded gasoline in the New York Harbor spot market moved 9.2% higher. On the other hand, prices in the US Gulf for gasoline during the same period contracted by 4.1%.

“The US Gulf was getting a lot of supply from Venezuela and places like that, so the markets weren’t impacted as much from European strikes and didn’t have the refinery problems [of the east coast],” Flynn said.

In recent days, however, the NYMEX prompt-gasoline contract has begun to correct itself. From 29 November to 8 December, the WTI crude contract fell 2.2% while gasoline futures dumped 3.2% of their value.

"Now that the price of crude has gone back up [toward $90/bbl], the price of gasoline has been going down and is more in line with the seasonal norms,” Flynn said.

EIA-reported US gasoline inventories were also higher than expected on Wednesday, pushing RBOB contracts down.

But given the nearly two-month rise brought on by the French strikes, the market could still have more correcting ahead.

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By: Sheena Martin
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