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Refinery outage and quick price reactions

Hydrocarbon Engineering,


Unplanned refinery outages do have noticeable impacts on liquid fuel markets, disrupting supplies of gasoline and distillate, particularly in regions where there is a tight balance, and this is particularly true for the West Coast (PADD 5). When refineries undergo planned maintenance, they make arrangements for alternative sources of supply to ensure that obligations are met.

However, the sudden loss of production during unplanned outages can take days or weeks for market adjustments to take effect. As a result, unplanned outages often result in a reduction in supply that causes prices to increase, sometimes dramatically. The severity and duration of these spikes in price depend on how quickly the refinery problem can be resolved and how soon supply from alternative sources can reach the affected market.

PADD 5

The mainland portion of PADD 5 is relatively isolated from other US markets as it is bracketed by the Pacific Ocean and Rocky Mountains, and it is also far from international sources of supply, so the region is dependent on in region production to meet demand. Also, California’s more restrictive gasoline specifications limit the availability of supply from other markets. There are three distinct supply/demand centres in mainland PADD 5 which are near Seattle and the Canadian border, San Francisco, and Los Angeles. Due to this, moving product to Southern California requires longer lead times.

Rapid response

West Coast product markets reacted immediately to the situation at the Torrance refinery. On February 18 a fire and explosion occurred at the ExxonMobil owned facility which is the third largest refinery in Southern California and has approximately 20% of the regions FCC capacity. Not only that but it is an important source of gasoline and distillate fuel oil supply. Spot prices in Los Angeles (LA) for California Reformulated Blendstock for Oxygenate Blending (CARBOB) gasoline rose 22 cents to hit US$2.02/gal. between February 17 and 23. Spot CARBOB prices increased from a 25 cent/gal. premium above the New York Mercantile Exchange (Nymex) Reformulated Blendstock for Oxygenate Blending (RBOB) front month futures contract, a standard pricing basis for gasoline, to 41 cents/gal. above Nymex over the same time.

This rapid price response is not unusual and is similar to what happened following past unplanned outages. West Coast supply disruptions in 2008. 2009 and 2012 caused spot price spikes that lead to higher retail prices. As with previous disruptions, prices should stabilise as more information about the severity and duration of the expected outages becomes available.

Edited from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/refining/27022015/refinery-outages-eia/


 

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