FocusUS midwest refinery turnarounds may raise gasoline prices

20 January 2011 22:31  [Source: ICIS news]

By Sheena Martin

HOUSTON (ICIS)--US midwest gasoline prices could spike as much as 10 cents or more in March and early April as refineries in the region undergo turnarounds, a US Gulf and midwest trader said on Thursday.

More refined products would be transported via pipeline to the midwest from the US Gulf in order to pick up the slack during the turnaround period, the trader said, but the higher pipeline volumes would cause delivery delays.

To fill customer demands for refined products, midwest suppliers would need to bring product up the Explorer Pipeline. Refined products are transported through the midwest from the US Gulf via the Explorer Pipeline, which ends ending at the northeast corner of Illinois.

The midwest, or PADD II, accounts for more than 21% of the nation’s refining crude capacity at around 4.0m bbl/day.

During the turnarounds, about 608,000 bbl-worth of refining capacity would be down for most or all of March, according to refinery information released so far. The turnarounds would temporarily reduce refining capacity in the region by at least 15%.

The outages include units at ConocoPhillips’s Wood River refinery in Illinois, Valero’s Ardmore refinery in Oklahoma, BP’s Whiting refinery in Indiana and Marathon’s Catlettsburg refinery in Kentucky.

Regional suppliers usually build up additional product ahead of turnarounds in order to fill customer demands and not cause a shockwave through the spot market.

“[Prices] usually depend on how well the company in turnaround plans for it and if they come out on schedule,” said another midwest trader. “When refiners have issues coming out of the turnarounds that is when we see interesting spikes in values.”

The midwest trader said that with so many refineries shutting units simultaneously, and with the history of slow turnarounds, it would not be a stretch to expect two-thirds to three-quarters of the turnarounds to end behind schedule.

During the August turnaround season, many refineries ended maintenance late. Many of the restarts were weeks to more than a month after scheduled dates.

Because so many refineries on the east coast were undergoing turnarounds, a few lasting longer than expected caused gasoline differentials to spike.

“[The price] can be very reflective of how serious the issue - how long the project is delayed – and if there are other [refineries] with issues at that time and how the US Gulf is moving,” said a midwest broker.

Some market participants said they wondered if some of the turnarounds would not be pushed back. “If I owned a refinery in the Gulf coast or midwest, I would delay the turnarounds with gasoline and distillate cracks so high,” the US Gulf  and midwest trader said.

As of 19 January, gasoline margins were $13.37/bbl. Heating oil margins were at $20.70/bbl.

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By: Sheena Martin
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