Brian L. Milne, Energy Editor, Schneider Electric
A mid-May price spike in Midwest gasoline cash differentials spurred by a trio of fluid catalytic cracking (FCC) unit outages at refineries located in the region atop of refinery upgrades that have limited the production of oil products in the Midwest continues to abate, pressuring supplier “rack” postings at wholesale distribution terminals through the week-ended May 27.
Cash differentials in the Midwest spot markets were continuing their decline in post Memorial Day trade, as regional markets find better supply-demand balance helped by the mid-month price spike. Meanwhile, cash differentials for gasoline along the West Coast slid to one-month or better lows just ahead of the holiday on building regional supply.
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Nationally, gasoline supply has increased for three straight weeks through May 17, data from the Energy Information Administration shows. U.S. gasoline supply was last tallied at a five-week high, and well above stock levels held a year ago and against the five-year average.
Ahead of the Memorial Day weekend, gasoline futures had reversed a downtrend on short covering ahead of the holiday weekend, and on market talk that BP would not return to service a 250,000 barrel per day (bpd) crude unit at its Whiting refinery in Indiana, ahead of schedule. BP is upgrading the crude unit at the 420,000 bpd refinery to process heavy Canadian oil, with the refinery running at reduced rates during the project. Earlier in May there was talk the crude unit would return as early as this week, ahead of a previous late second quarter, early third quarter restart. Market chatter on May 24 now suggests the unit would not return to service until sometime in the first half of June.
The Whiting refinery is a key gasoline provider for the upper Midwest.
Gasoline demand remains tepid, running even with a year ago through May 17, while down 3.3% for the four weeks through May 17 with the comparable year-ago period. Meanwhile, AAA had projected a 0.9% decline in holiday travel for the just passed holiday weekend.
“AAA is forecasting Memorial Day travel to be slightly lower this year due to an up and down economy, the impact of the end of the payroll tax holiday on working families and a 30-year low in the percentage of working people in the workforce,” said AAA President and CEO Robert L. Darbelnet ahead of the weekend. “Additionally, economic growth in the first quarter was strong, but the impact of the sequester is now beginning to be felt, resulting in reduced economic growth expectations. These and other variables are expected to result in few travelers this holiday.”
Limited gasoline demand has capped the upside push by gasoline prices. Meanwhile, expectations for greater economic growth that would spur an uptick in consumption continue to underpin oil prices.
US economic data has shown improvements in labor and housing, while durable goods orders in April advanced more than expected that would prompt greater manufacturing activity if sustained. Consumer confidence has also brightened—a good sign for gasoline retailers if it continues. Backstopping the economic outlook is the quantitative easing policy by the Federal Reserve, which includes $85 billion in bond buying by the central bank each month in an effort to hold rates low and to push investments that allow for business expansion and new hiring.
About the Author
Brian L. Milne is the Energy Editor for Schneider Electric—a leading business-to-business provider of real-time commodity information services among many other activities. Milne has been focused on the energy industry for 17 years as an analyst, journalist and editor. He can be reached at email@example.com.