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Midwest gasoline supply

Hydrocarbon Engineering,

According to the US Energy Information Administration (EIA), the national average price for retail gasoline is US$ 3.70/gal. However, there exists significant variation in gasoline prices.

While average Midwest retail prices at US$ 3.67/gal. are the third highest among the US Petroleum Administration for Defence Districts (PADDs), gasoline prices across other PADDs ranged from US$ 4.04/gal. to US$ 3.48/gal.

EIA has explained that Midwest gasoline prices can be volatile due to many factors, the most important of which are the logistics of supply and distribution to this region. PADD 2 covers a large geographical area consisting of multiple semi-connected markets. The region is also landlocked and relatively isolated; it cannot access global markets for additional supplies.

Midwest gasoline supply comes mainly from refineries within the region, and is supplemented with pipeline shipments from neighbouring PADDs, primarily the Gulf Coast, and local inventory withdrawals. Despite the region’s refineries producing significant amounts of gasoline, the northern part of PADD 2, including Chicago, requires shipments from southern PADD 2 (Oklahoma and Kansas) and the Gulf Coast to meet demand.

Recent changes to pipeline infrastructure and other factors have led to congestion on pipelines that ship gasoline north. As a result, PADD 2 has recently relied more heavily on inventories and in-region production.

Price increase occurred even despite high refinery runs in the region. Crude runs for the week ending 20 May were 3.6 million bpd, 329 000 more than the five year average. However, with high refinery runs insufficient and declining inventories, Midwest gasoline inventories fell 1.5 million bbls from 23 – 30 May, the next marginal barrel of supply into PADD 2 came from another PADD, constraints in moving supply led to higher prices in Chicago.

However, spot wholesale gasoline prices in Chicago began to decline compared to New York prices after high crude runs and supplies arriving from Group 3 and the Gulf Coast via pipeline built PADD 2 gasoline inventories by 1 million bbls for the week ending 13 June. Crude runs in PADD 2 for the week were 3.7 million bpd, 364 000 bpd more than the five year average and the highest level since the EIA began publishing the data in 1992. Spot prices in Chicago declined more than 9 cents/gal. over the weekend of June 13 – 16, and prices were 3 cents below New York prices on 1 July.

Adapted from a press release by Emma McAleavey.

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