Updates
Later, 9:34 p.m.: earlier today I linked an RBN story on refinery maintenance being the culprit in higher gasoline prices all of a sudden. Fuelfix, from The Houston Chronicle, reports the same:
Refineries running full throttle have likely delayed making much-needed repairs, and the strain is starting to show.
As plants operate at record-high capacities to soak up cheap crude and satisfy a growing demand for gasoline, a spate of refinery shutdowns have cropped up across the United States, including a recent shutdown of the BP Whiting plant, the largest refinery in the Midwest.
“It stands to reason that if you run any sophisticated plant harder and faster than normal, you are bound to end up breaking something,”RBN analyst Sandy Fielden wrote in a recent analysis of crude refining trends.
The shutdown of a relatively new crude distillation tower at the BP Whiting plant has been linked to leaking tubes, according to media reports. The outage has caused gasoline prices to spike in the Chicago area and diminished demand for heavy crudes from Canada, Fielden wrote. On Tuesday, Western Canadian Select was selling for $23.22 per barrel, the lowest level in years, according to his analysis.
The problem at the BP plant in Indiana is the latest example of unplanned outages that have plagued the nation’s refineries this year.
An explosion at an Exxon Mobil refinery in Torrance, California in February that injured four workers and knocked operations offline has attracted the most attention, as West Coast gasoline prices to spiked for weeks. But smaller outages have happened, as well.
Philadelphia Energy Solutions shut down a catalytic cracking unit that makes gasoline while Marathon Petroleum Corp. shut its refinery in Robinson, Illinois for repairs expected to last two months, according to Reuters reports. Along the Gulf Coast, Shell Deer Park’s jet/diesel unit went down at the end of July, Fielden said.
“What that tells us is that not only have refiners been putting the pedal to the floor but that they have also been putting off routine maintenance in order to keep the party going,” he wrote.
As summer driving season inches to a close on Labor Day and refiners prepare to shut down for routine fall maintenance, more capacity may go offline this year than in the past as refiners catch up on repairs that were put on the back burner while plants ran at a breakneck pace, Fielden wrote.
The expected heavier turnaround season is bad news for oil prices. With a swell of refineries shutting down for weeks at a time, crude stockpiles will start growing again in the fall since the oil has nowhere to go, Fielden wrote. Inventories at the Cushing, Oklahoma hub could reach record levels, especially if the BP refinery doesn’t come online for a long time, he said.
Original Post
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RBN Energy: I don't know how many folks caught the story last night that gasoline was going to jump 50 cents, maybe more, overnight in Chicago ... for refinery maintenance. I thought it bogus, that a company would schedule refinery maintenance during peak driving season but RBN Energy explains why.
During the first 7 months of 2015 the U.S. experienced record setting refinery crude processing and utilization rates. By the end of July crude inputs topped 17 MMb/d for the first time and nationwide refineries ran at over 96% of operable capacity - reaping the rewards of robust margins. But the party has been marred by a number of unexpected outages – the latest of which brought down a 250 Mb/d unit at BP’s Whiting, IN refinery last weekend – causing a spike in Chicago gasoline prices.
Today we ponder why outages may be occurring and the upcoming impact of overdue fall maintenance.
An unexpected outage on Saturday (August 8, 2015) affected the largest Midwest refinery – the 413 Mb/d BP Whiting, IN plant. Press reports indicate that leaking tubes on a 250 Mb/d crude distillation tower caused BP to shut the unit – that is not expected to restart for at least a month. The refinery crude unit impacted by the outage is relatively new - apparently part of the multi year upgrading project completed in 2013 to allow Whiting to run heavy Canadian crude.
The outage created immediate concerns about a shortage of refined products in the Chicago area – particularly gasoline – that has been in record demand during this summer’s driving season as U.S. drivers have guzzled cheaper supplies. In response to the outage Chicago gasoline futures prices jumped 17% or 27 cnts/gal from 159 cnts/Gal on Friday August 7, 2015 to 186 cnts/Gal on Wednesday August 12 (see orange dashed oval in Figure #1). Spot prices for Chicago gasoline are reported to have jumped as much as $1/Gal. In addition to a potential shortage of gasoline, the outage leaves BP traders struggling to deal with 250 Mb/d of crude feedstock that is now surplus to their requirements.
And because the outage reduces demand for Canadian heavy supplies – buyers in Hardisty, Alberta discounted the price of benchmark Western Canadian Select (WCS) to U.S. benchmark West Texas Intermediate (WTI) at Cushing, OK by nearly $20/Bbl. That left WCS selling at just $23.33/Bbl on August 11, 2015 – it’s lowest level for years – adding insult to injury for Canadian producers already suffering discounted prices because of crude transport congestion.
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