Refinery closings could push gasoline prices back to $4
— -- Gasoline prices could be edge higher this spring, thanks to the bankruptcy of a European refiner, the industry's latest casualty.
The U.S. east coast already sees the threat of a temporary spike in gasoline to $4 or more per gallon for the summer driving season and could pay some of the highest prices in the nation, due to the shutdown of refining capacity in that market.
Refining margins have compressed as oil prices have risen. On top of that, U.S. demand has continued to drop, about 4% in the last quarter, so analysts expect any rise in prices in the spring peak season to be temporary.
Over the last several years, the refining industry has shut down about 1 million barrels per day of refining capacity aimed at the east coast, the latest of which is the St. Croix Hovensa refinery, closing next month.
The bankruptcy filing last week by Swiss-based Petroplus, which operated five refineries or 4% of European capacity, adds another uncertainty and illustrates the interconnections in the international refining market.
One of the largest European refiners, Petroplus' bankruptcy throws into doubt the fate of the two refineries it was still operating, the U.K. Coryton refinery, which serves the London market, and the refinery in Ingolstadt, Germany. Petroplus had previously shut three refineries due to credit problems and was forced to close the remaining two after it failed to get credit.
Barclays analysts, in a note, point out that the Petroplus shutdown on top of other refinery closings "does provide a breather to the otherwise ailing refinery margins and helps to erase almost all of the current 1.5 million barrels per day overcapacity in the market."
They note that developing countries, however, are adding refining capacity at a record pace, with China and India adding four million barrels a day this past year.
Petroplus was supplying about 19% of the U.K.'s gasoline and 11% of its diesel, according to Andrew Lipow, president of Lipow Oil Associates.
The U.S., meanwhile, imports about 100,000 barrels a day of gasoline from the U.K. "We're getting a number of different grades of gasoline from the U.K., many of which end up in the Northeast," he said. U.S. east coast gasoline demand was about 3.1 million barrels per day in 2010, with imports satisfying about 25% of that.
Lipow said the Petroplus refining system had been supplying Europe with about 250,000 barrels per day of diesel at a time when Europe is importing 500,000 barrels from the U.S.
Barclays analysts, in a note, said the gasoline likely to gain most on the Petroplus shutdown is summer grade RBOB, the reformulated gasoline blend. Hovensa was a big producer of that. RBOB on the Nymex Friday for February delivery was at $2.90 per gallon, after rising about 3% in the last month.
"I think when you add that (Petroplus) to the Conoco and Sunoco refinery closings, that's why you've seen the gasoline market rally. Tightening supplies have been underpinning the market's rally," said Gene McGillian, analyst with Tradition Energy.
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