With oil at a six-year low and much of the U.S. enjoying cheaper gas prices this summer, drivers in Chicago and the Midwest are in for some real pain at the pump.
Gasoline prices across the Midwest spiked an average of 20 cents or more per gallon overnight, after the outage at BP‘s Whiting refinery in Indiana sent prices in the wholesale spot market skyrocketing this week. More of that price shock should filter through to gas stations in states from Ohio and Kentucky to Illinois, Wisconsin and Michigan.
Prices are expected to temporarily rise 75 cents to $1 from week-ago levels in Chicago alone, according to Tom Kloza of the Oil Price Information Service. Chicago drivers were paying an average of $3.01 per gallon for unleaded gasoline Thursday morning, compared to the average $2.81 per gallon Wednesday and $2.72 a week ago, according to AAA.
The price jump in the Midwest also helped push the national average for gasoline up by 3 cents overnight Thursday to $2.61 per gallon. But that is still lower than last week’s $2.62 per gallon and way below the $3.47 drivers spent for unleaded gasoline at this time last year. Despite a spate of temporary refining issues in the Midwest and elsewhere, drivers there and across the U.S. should see prices below $2 a gallon by the end of the year, analysts said.
The BP refinery shut down the largest of its three crude distillation units for repairs last Saturday, reducing production of gasoline for the Midwestern market. The repairs could take at least a month and affected production of a reported 240,000 barrels per day. A BP spokesman was not immediately available to comment.
In the Midwest spot market this week, prices shot up dramatically before falling slightly Thursday.
“They moved up Monday, Tuesday, Wednesday by about 70 cents a gallon,” said Kloza, co-founder and global head of energy analysis at OPIS. “If you were in Chicago, and a transport truck hauling gasoline passed you on the road, there was a day there where it was up 60 cents. While that truck was in transit, the intrinsic value of the 8,000 gallons of gasoline it was hauling went up almost $5,000.”
Kloza said due to the BP outage, the high in the wholesale market for reformulated gas got up to $2.90 but it’s not clear that will show up at the pump. “If you were saying that’s the price for the weekend that would indicate retail prices of $3.75 to $4. But we still have a day after this, and they’ve dropped a little,” he said.
The BP outage comes on top of the much more serious outage atExxon Mobil‘s Torrance, California, refinery which has resulted in sharply higher gasoline prices on the West Coast this summer. Exxon is reportedly seeking to restart the unit next month. It also highlights the nature of the refining industry, which while running at record levels this year, produces just as much product as it needs.
“The problem is—and this is a problem that can rear its head with hurricanes or refinery events of consequence—when you operate on just-in-time inventory, and refineries go down in high-demand season—just-in-time becomes just intolerable,” said Kloza.
Michigan prices were particularly affected this week, with drivers in Benton Harbor seeing an average 30 cent jump in unleaded gasoline overnight Thursday to $2.79 per gallon. Across the state, the average jumped to $2.80 per gallon from $2.58 Wednesday, according to AAA. In Illinois, prices went from $2.62 to $2.78 per gallon overnight, and in Indiana prices were up 18 cents a gallon to $2.64. Ohio drivers were paying 21 cents more on average Thursday, and in Cincinnati, prices jumped 23 cents overnight to $2.84 per gallon, according to AAA.
“I don’t know how much prices are going to spike, but it’s going to be quite a bit because it appears the BP refinery is going to be cut back on its utilization for at least a month,” said Andrew Lipow, president of Lipow Oil Associates. “It’s unclear what the damage is and the extent of the damage. If the damage is throughout the entire unit, it could be far longer than a month. … But we just don’t know.”
But drivers in Chicago could be particularly impacted, and prices should stay elevated during the month when the refinery is out of service because pipeline capacity to the area is full, according to Lipow.
“Whiting is about 50 percent of the refining capacity that’s in the Chicago area. This particular crude unit represents 30 percent of the refining capacity in the Chicago area,” he said.
Refineries head into maintenance season as summer driving season comes to an end after Labor Day, and that was expected to be an event that could cause another leg down for oil prices this fall. Across the country, a number of refineries have been affected by smaller issues, including the Philadelphia Energy Solutions refinery where a unit was temporarily offline.
Crude oil prices Thursday fell to a nearly 6 ½-year low, with West Texas Intermediate crude futures falling below $42 per barrel.
That alone should upset drivers when they go to fill up. “They will be seeing red,” said Kloza. “It’s a complete disconnect and I can understand they’re upset when they see oil prices at the lowest levels since 2009.”
Meanwhile, in Canada, a direct impact of the BP refinery outage has already been felt. Canadian heavy crude prices were sharply lower in the spot market—at about $20 a barrel, less than half the price of U.S. West Texas Intermediate. Canadian prices were already depressed along with WTI but fell even more this week, as the BP refinery is a big customer for the crude.
As for California, drivers could see a reprieve when Torrance is back in operation. Lipow estimates the partial outage added about 60 cents a gallon for the state’s drivers. The average price in California was $3.59 per gallon Thursday, still well below the $3.90 a year ago, according to AAA.
“This is akin to thunder storms. It’s not climate. The climate is global cooling for all oil prices across the barrel,” said Kloza.
With oil trading at its lows for the year, many analysts expect another drop, possibly to the $30s per barrel, before it bottoms. “These are crude oil prices that are supportive of gasoline prices that are close to the lows we saw in January. It was at $2.02. That’s where we bottomed out in retail prices. But a majority of states had prices below $2,” Kloza said.
http://www.cnbc.com/2015/08/13/ouch-gasoline-prices-are-spiking-in-these-states.html
PACK MAN PRICES
“… drivers there and across the U.S. should see prices below $2 a gallon by the end of the year, analysts said.”
Much rather see a bunch of dead communists by the end of the year.
That’s what happens after Øsurper started killing refineries.