Refinery Failures Spur Bets on Higher U.S. Gasoline

Refinery Failures

Speculators increased wagers on higher U.S. gasoline prices by the most since February as refinery closures constricted supply.

The net-long position jumped 45 percent from a four-year low as hedge funds pared record short bets and added long wagers for the first time in six weeks, weekly U.S. Commodity Futures Trading Commission data through Sept. 23 show.

Refineries in eastern Canada and Texas shut gasoline units for unplanned repairs as others began seasonal maintenance. Futures contracts for October traded at the highest premium to November since 2012, reflecting heightened concern about supply. The closures threaten the retreat at the pump that has drivers paying the lowest late-September prices since 2010.

“People have covered their positions or moved away from short to long,” Amrita Sen, chief oil analyst at Energy Aspects Ltd. in London, said by phone Sept. 26. “There’s a huge amount of FCC outages in North America at the moment,” she said, referring to fluid catalytic crackers that make gasoline.

Gasoline for October delivery gained 6.99 cents, or 2.7 percent, to $2.6287 a gallon on the New York Mercantile Exchange in the period covered by the CFTC report. The contract advanced 1.3 percent to $2.6963 today.

Retail prices rose in the three days ended Sept. 24, stemming a 16-day decline. The national average was $3.337 yesterday, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.

Refinery Maintenance

“The significant amount of refinery maintenance going on, particularly in the Gulf Coast, has led to tightening supplies, and as a result the steep decline in gas prices many drivers saw earlier in the month has stopped,” Michael Green, a spokesman for AAA in Washington, said by phone Sept. 26.

Fluid catalytic cracking capacity offline in Texas is at the highest level for this time of year since at least 2011, data compiled by Bloomberg show. The units break down vacuum gasoil to produce fuel including gasoline and diesel.

Companies including Alon USA Energy Inc. (ALJ), Exxon Mobil Corp. (XOM) and Citgo Petroleum Corp. reported equipment failures just as plants from Marathon Petroleum Corp. (MPC)’s Galveston Bay complex to Phillips 66’s Sweeny site in Texas shut units for scheduled repairs.

Conventional gasoline in the Gulf Coast spot market jumped to 16 cents a gallon over futures Sept. 25, the most since August 2012.

East Coast

Gasoline supplies in the Mid-Atlantic region, which includes New York, the delivery point for Nymex futures, dropped three consecutive weeks to 10 percent below a year earlier, Energy Information Administration data show, as Irving Oil Corp. and North Atlantic Refining Ltd. cut production at refineries in eastern Canada.

Irving’s Saint John plant in New Brunswick, which ships about half of its fuel output to the U.S. Northeast, shut an alkylation unit, according to Genscape Inc. A crude unit and fluid catalytic cracker are also shut.

North Atlantic’s Come By Chance refinery in Newfoundland closed units during the first week of September for a month of maintenance.

Supplies along the East Coast are poised to increase as the higher prices attract more cargoes to the U.S. There were 17 tankers chartered or anticipated to be booked from Rotterdam to New York in the next two weeks, according to a Bloomberg survey of 5 shipbrokers Sept. 24.

Diesel Wagers

In other markets, bearish wagers on U.S. ultra low sulfur diesel climbed 5,661 to 27,051 futures and options combined. The fuel fell 7.31 cents to $2.6832 a gallon on the Nymex in the report week.

Net-long wagers on U.S. natural gas slid 13 percent to 94,343. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 17.9 cents to $3.816 per million British thermal units on the Nymex during the report week.

Net longs for West Texas Intermediate crude decreased by 4.8 percent to 193,965. The U.S. benchmark declined $3.32, or 3.5 percent, to $91.56 a barrel in the CFTC week.

Bullish bets on gasoline increased 3,727 contracts to 12,004 futures and options combined, the CFTC reported. Short positions fell 508 to 38,206. Long wagers grew 3,219 to 50,210.

“A record short position when supplies are tight is a recipe for covering and higher prices,” Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York, said by phone Sept. 26. “We’ve certainly seen that.”