14 November 2011 17:55 [Source: ICIS news]
HOUSTON (ICIS)--Gasoline futures tumbled to prices not seen since October because of an expected jump in refinery output to meet diesel demand, which would exacerbate the gasoline supply glut, an analyst said on Monday.
“Supplies for diesel fuel are tight, and refiners are going to have to kick up production of diesel fuel,” said analyst Phil Flynn with PFGBest.
Gasoline futures were at $2.51/gal on the NYMEX mid-morning, down 9.38 cents. Gasoline futures settled at $2.5110/gal on 3 October, and last settled lower than $2.51/gal on 15 February, settling at $2.4890/gal.
US refineries are designed to optimise gasoline production since most of the nation's light vehicles run on the fuel.
Demand for diesel is strong for agriculture in South America and industry in China and Japan, said Flynn. The US is exporting to these locations. For the week of 4 November, distillate exports were at 912,000 bbl/day, up by 175,000 bbl/day from this time in 2010.
Gasoline demand through most of October was about 5-6% lower than October 2010, according to the Energy Information Administration (EIA). Increasing gasoline production will boost extraneous gasoline supplies in a climate of low demand, causing prices to fall further, Flynn said.
Investors have also been watching the premium of diesel over gasoline futures, which was more than 56 cents/gal at Friday’s settlement. Gasoline futures settled at $2.6038/gal and heating oil settled at $3.1682/gal.
For a refiner to increase diesel production, overall capacity and output must increase, Flynn said. US refinery utilisation average 82.6% for the week of 4 November, the lowest rate since the spring. Investors expect this to increase.
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