Chicago Gasoline Prices Spike on Pipeline Leak

Brian L. Milne, Refined Fuels Editor, Telvent DTN

Reduced driving demand following Labor Day typically presses gasoline prices lower in September. There have been exceptions, such as when supply disruptions caused by a hurricane occur, with September the peak period for storm activity in the Atlantic Basin. US drivers should brace for another run higher in gasoline prices, although the increase should be limited in duration.

On Sept. 9, Enbridge Energy Partners, L.P. were forced to shut down a key pipeline that carries Canadian crude oil to refineries in the US Midwest because of a leak in Romeoville, Illinois. The pipeline was transporting 459,000 bpd of heavy crude oil for refinement into gasoline, diesel and other fuels when shut, with Canada the largest exporter of crude oil to the U.S.

The pipeline outage is expected to impact refineries operated by ExxonMobil, CITGO and BP in Indiana and Illinois.

Markets Affected
News of the downed pipeline spiked gasoline prices in the Chicago spot market by more than 20 cents a gallon on Friday as traders worked to cover short supply positions. Spot values also moved higher by more than a nickel a gallon in several other markets, with the California market showing the slimiest of gains.

The spot oil products market refers to prompt pricing for bulk transactions of refined fuels such as gasoline and diesel moving along pipelines, on barges or tankers. This fuel is then delivered to wholesale terminals, and subsequently transferred to retail outlets. The spot market typically directs pricing at wholesale terminals, with those prices referred to as supplier rack postings.

Wholesale prices in most metropolitan markets across the US were already on the rise before the pipeline outage, with the exception of several markets along the West Coast. The largest gains in wholesale costs have been occurring in the Midwest, a trend that began in late August as fuel suppliers began the transition from summer grade gasoline to winter grade, tightening the regional supply-demand balance in the process, and lifting prices.

These higher wholesale costs will be passed through to retailers, lifting pump prices midway through September.

Retail gasoline prices have been mixed since late August, with Midwest values mostly moving higher. The U.S. average price for retail regular grade gasoline moved to a $2.682 gallon six-month low in late August, and held there in early September. Expect the U.S. average to move higher.

About the Author
Brian L. Milne is the Refined Fuels Editor for Telvent DTN-a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for more than 14 years as an analyst, journalist and editor. He can be reached at brian.milne@telventdtn.com.

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