14 March 2011 21:41 [Source: ICIS news]
HOUSTON (ICIS)--Gasoline price differentials have increased as refiners switch to summer blends from winter blends to comply with environmental requirements, a market analyst said on Monday.
“The switch to summer blends are playing havoc with the [crack] spread” as gasoline prices rise at a faster pace than crude oil, said Phil Flynn, senior market analyst with brokerage firm PFGBest. The crack spread is the difference in price of gasoline per barrel and the price of oil per barrel.
With insufficient summer gasoline supplies as refiners make the blend switch and high demand, crack spreads and prices usually surge. The gasoline spread on 11 March was at $24.32/bbl - a crack spread over $25/bbl has not been seen for at least 4.5 years.
Crack spreads have been unusually high since mid-December. A month ago, though, the spreads were about $5/bbl lower, hovering at $20/bbl.
US environmental rules require a lower vapour pressure in gasoline during the summer in order to curb air pollution.
Because of deadlines for the transition, refiners have a short time to quickly build summer gasoline supplies. During this time, prices usually jump.
After summer supplies are sufficient, however the refineries will shed surplus winter gasoline blends, leading to a temporary dip in prices.
Some of the price drop from winter gasoline sales was already seen on Monday.
Although crude oil and heating oil futures made gains on the NYMEX, reformulated gasoline blendstock for oxygenated blending (RBOB) futures fell nearly 3.00 cents to end the day at $2.9603/gal.
The price drop, however, only would last until refiners can eliminate the winter gasoline inventory. Then gasoline prices would likely jump on the start of the summer driving season.
Prices were expected to average $4.30/gal during the summer.
Flynn described the seasonal transition as a “government mandated shortage” of gasoline. The market has limited supply of the summer blend until production ramps up and supply builds.
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