Refiners RULE!
quote.bloomberg.com
04/25 16:06
Gasoline to Stay High as Refiners Barely Meet
Demand (Update2)
By Stephen Voss
New York, April 25 (Bloomberg) -- U.S. motorists don't need to wait for summer
to see gasoline at $2 a gallon. Pump prices are already that high from San
Francisco to Chicago, and fuel retailers expect costs to stay high this summer.
While high crude oil prices and low gasoline inventories are behind the rally, the
main reason for the rise in gasoline may be the lack of new refineries in the U.S.,
the largest energy user. U.S. gasoline demand jumped 22 percent since 1986,
while refining capacity rose 7 percent, according to industry figures.
``The oil industry has not invested in infrastructure at the refining level,'' said Paul
Torstrick, vice president of Gas City Ltd., a 40-station retail chain with
headquarters in Frankfort, Illinois. There's ``no question'' prices will stay high this
summer.
A new refinery hasn't been built since 1976 because of low profits through much
of the 1990s and strict environmental regulations for new plants, said Edward
Murphy, the American Petroleum Institute's general manger of downstream
operations in Washington.
``A decent refinery would cost $1.5 billion to $2 billion,'' said Fadel Gheit, an
analyst with Fahnestock & Co. in New York. ``No company, even Exxon Mobil,
is willing to gamble that kind of money.''
Pump prices reflect the tight supplies. Averaged nationwide, regular gasoline
fetched $1.619 a gallon last week, according to the Energy Department, the
highest price since the week ended July 3. Prices averaged about $1.55 a gallon
last summer, the period when motor-fuel demand reaches an annual peak.
Soaring Pump Prices
An Amoco-branded filling station in central Chicago sold premium gasoline today
at $2.199 a gallon and a Shell station in San Francisco is charging $2.09 for
regular.
Prices soared in the Midwest last year as refiners had a hard time coping with a
new formula for cleaner-burning gasoline, and a pipeline rupture limited deliveries.
Supplies may be low in the region again this year, though for a different reason:
Premcor Inc. permanently closed its 75,000 barrel-a-day Blue Island, Illinois,
refinery at the end of January.
Making the task of selling fuel harder is that refineries have to supply about 50
varieties of gasoline in the U.S.
While cleaner-burning reformulated gasoline, or RFG, makes up only about
one-third of U.S. sales, differences in additives and the chemical makeup of RFG
have expanded the number of fuels refineries must make and that local suppliers
must store.
Refinery Explosion
An explosion Monday at a Tosco Corp. refinery in Carson, California, sent futures
prices soaring. Clean air rules in California are stricter than in other states, and
while Tosco said gasoline production was unaffected, the blast did highlight the
tight refining capacity in California.
Out West, ``you're exposing yourself to more risk when it comes to supply
disruptions and outages,'' Lee Raymond, chairman of Exxon Mobil Corp., said in
New York on Monday, before the explosion. ``This kind of thing will never happen
in Texas because you can always go to Louisiana, but when it happens in
California, you can't turn to Nevada.''
Midway Oil Co., a Rock Island, Illinois-based retailer, has reduced the number of
service stations to 18 from 40, partly because changing environmental rules
mean it will soon need to supply RFG in some locations and non-reformulated
fuel in others, effectively doubling storage needs.
Politician Complaints
Consumers and politicians already are complaining about prices. Democratic
Senators Russ Feingold and Herb Kohl of Wisconsin sent a letter last week to
the U.S. Energy Secretary and Environmental Protection Agency administrator
asking why retail prices in their state rose as much as 15 to 20 cents in two
days, even before harder-to-make summer fuels are supposed to be delivered at
the pump on June 1.
The politicians urged the Bush administration to allow refiners to mingle
winter-blend and summer-blend gasoline and questioned whether recent oil
company mergers and the Blue Island refinery closure have left local supplies too
low.
Truckers are also hurting, paying $1.437 a gallon for diesel, averaged nationwide,
up 4 percent from a year ago and 33 percent from two years ago.
``Gasoline prices pose a double problem'' for truckers, because consumers
spend more on motor fuel and less on goods that move by truck, said Bob
Costello, an economist at the American Trucking Association in Alexandria,
Virginia.
Consumer Spending
In February, $168 billion, or 2.4 percent of U.S. consumer spending, went to pay
for oil and gas, up from 1.8 percent two years earlier, according to the Commerce
Department.
``The last thing we need with a weak economy is to have people spending more
money on necessities like gasoline and heating oil,'' said Cary Leahey, a senior
U.S. economist with Deutsche Bank Securities Inc. in New York.
Fuel retailers say they've missed out on the price rally. The National Association
of Convenience Stores, which represents about 120,000 retail outlets, says the
average profit margin per gallon was 11.8 cents in the fourth quarter, down 7
percent from a year earlier. NACS members handle 60 percent of U.S. motor fuel
sales.
Crude oil was recently trading at $27 a barrel on the New York Mercantile
Exchange, up from the average of $21.33 during the past five years. |
