Rise in Refinery Outages, Tighter Supplies Pushing up US Fuel Prices

SEATTLE (Oil Monster): U.S. oil refiners that cranked up processing this year amid soaring demand for gasoline and diesel are being hit by outages weighing on their ability to rebuild thin fuel stockpiles and helping drive up fuel prices.

A more than 50% jump in mechanical outages in the first nine months this year combined with higher planned maintenance after a long run of operating near full-bore has led to tightening fuel supplies and rising prices.

Troubles started in the Midwest, where retail gasoline prices hit $4 a gallon in Minnesota on Sept. 11, the highest in more than 12 months. They then spread to the West Coast, where prices are running $6 a gallon this week in Los Angeles and San Diego, also the highest this year, according to motorist group AAA and price tracker GasBuddy.com.

In the two regions, refinery outages preceded the price hikes. An unplanned outage at Valero Energy's McKee refinery in Texas late last month and a planned shutdown at Phillips 66's Ponca City refinery in Oklahoma this month, likely contributed to tightening of the Midwestern gasoline markets, said Susan Bell, a senior vice president at consultancy Rystad Energy.

There have been 124 unplanned mechanical issues reported at U.S. refineries in the first three quarters this year, up 53% from the 81 in the same period last year, energy research firm IIR said. Compressor failures, loss of steam, tube leaks and similar issues are types of mechanical outages.

A surge in global crude oil prices to more than $90 a barrel also has contributed to fuel price hikes nationwide. A switch to cheaper, winter grade gasoline beginning this month could provide some relief in the short-term, analysts said.

However, already depleted fuel inventories have come under increased pressure from refinery outages and could set the stage for a resumption of price hikes later in the year. As of Sept. 15, U.S. gasoline stocks were 4% below the five-year average for this time of year. Diesel and other distillates were 14% lower, data from the Energy Information Administration showed on Wednesday.

"The refinery snags just do not stop," said Patrick De Haan, head of petroleum analysis at price tracker GasBuddy.com.

East Coast and West Coast refiners have faced higher unplanned outages this year, while the Midwest has seen fewer-but-longer outages impacting refined product supplies, said Hillary Stevenson, senior director of Energy Market Intelligence at IIR.

The spread of outages is moving to the Northeast. Irving Oil, a major fuel supplier from Maine to Boston, this week started a seven-week-long overhaul of its Saint John refinery in New Brunswick, Canada, that supplies about 13% of the region's distillates. Delta Air Lines's Trainer, Pennsylvania, refinery also is out for about six weeks.

Courtesy:  www.reuters.com