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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Gas futures soar; stockpiles fall

Associated Press The Spokesman-Review

NEW YORK — On a tear since mid-January, U.S. gasoline futures show no sign of slowing down, with refinery outages and low imports keeping supplies tight and traders gearing up for looming strong demand with the onset of the summer driving season.

Gasoline stockpiles have slipped in each of the past six U.S. government oil inventory reports, as refinery problems and seasonal maintenance hamper production at a time when imports are near two-year lows. That’s pushed futures on the New York Mercantile Exchange up over 50 percent since Jan. 18, lending a layer of support under crude oil prices in the process.

The rally in futures has already helped push pump prices higher, though analysts say U.S. drivers won’t see the kind of record retail prices seen in the wake of Hurricane Katrina in 2005. They expect about a further 10 percent run-up in futures prices, which should keep pump prices below $3 a gallon, before refineries start to churn out more gasoline in time for the summer.

Supply concerns are behind the rally, with some refineries around the country out of action due to technical or safety problems at a time when many are, in any case, undergoing seasonal maintenance. U.S. refinery utilization was at 86.3 percent of capacity as of March 16, the lowest for this time of the year since 2002, according to government data.

“At this time of the year, we should be in the low 90s. It looks like gasoline prices will run higher,” said Edward Meir, an analyst with brokerage Man Financial in New York.

“We’re seeing draws in gasoline stockpiles week after week, and there are still refinery concerns — every time one comes back on, another seems to go down.”

The latest glitch in the seasonal ramp-up in gasoline production before the summer was a fire at BP PLC’s giant oil refinery in Whiting, Ind., which is expected to shut key gasoline-producing units for between four and six weeks. The BP problems follow a mid-February fire at Valero Energy Corp.’s McKee refinery in Sunray, Texas, which put the 158,000 barrels-a-day refinery off line completely until April.

The refinery will only be able to ramp up to about 70 percent capacity, where it will stay until the end of the year.

The two fires, along with a host of smaller unplanned outages have exacerbated a supply shortage expected amid the normal seasonal maintenance-related downturn in production.

Meir predicts futures for reformulated gasoline blendstock for oxygenate blending, or RBOB, to peak at between $2.20 and $2.25.

Prices hit a seven-month closing high of $2.073 a gallon Tuesday.