‘Unplanned’ refinery outages drive gas prices higher, up 30 cents in Arkansas

All that it took to change the direction of pump prices and tighten the gasoline market across the U.S. was an earthquake-like explosion and fire at ExxonMobil’s sprawling refinery complex in southern California, the U.S. Energy Department said in its monthly refinery outage report on Feb. 27.

The report, produced by the Energy Information Administration, noted that unplanned refinery outages have noticeable effects on the nation’s fuel market, disrupting the supplies of gasoline and other distillates like diesel fuel, heating oil, kerosene and jet fuel.

On. Feb. 18, oil and gas giant ExxonMobil Corp. reported a huge fire and blast at its 750-acre refinery in Torrance Calif., that covers some 750 acres, taking the West Coast’s third-largest refinery offline and creating a backlash on the nation’s fuel market that will likely be felt for several weeks.

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

According to Exxon Mobil, the nation’s largest oil refiner behind ConocoPhillips, the Torrance refinery processes 155,000 barrels of crude oil a day and about 117,000 gallons of gasoline per day, about 15% to 20% of the southern California supply. Once the refinery went offline, the West Coast product market reacted immediately as regular and smog-reducing, specially reformulated gasoline prices jumped nearly 40 cents in the Los Angeles area.

And although the isolated California retail gasoline price is typically 30 cents to 40 cents higher than the national retail pump prices, other markets across the U.S. have immediately reacted to the rising prices on the West Coast and siphoned off profits by raising prices nationally to $2.44 per gallon, according to AAA’s Daily Fuel Gauge.

At the same time, volatile U.S. crude oil prices have remained near or below $50 per barrel (bbl) as light sweet crude oil futures for April delivery on the New York Mercantile Exchange fell 17 cents to $29.49 per barrel in Monday’s sessions.

35-DAY STREAK
In the Gulf Coast region, which includes Arkansas and other states, pump prices for regular unleaded have risen 28 cents in the past two weeks after bottoming out at 1.98 per gallon in mid-January, according to AAA’s fuel gauge.

In, Arkansas, motorists today are paying an average of $2.26 per gallon to fill up their tank across the state, according to AAA. Pump prices in the state’s metropolitan areas range from a low of $2.20 per gallon in the Fayetteville-Springdale-Rogers area to a high of $2.30 in the Pine Bluff area.

Motorists in the Fort Smith area are seeing prices at an average of $2.26 per gallon, and travelers and residents at the Texarkana state line are paying about $2.23 per gallon. Residents in the Little Rock-North Little Rock area are paying an average of $2.28 a gallon to fill up their tanks.

Drivers choosing to fill up the tanks with a higher-grade of gasoline should expect to pay an average premium of $2.62 a gallon across the state. Big rig drivers and other diesel fuel users will see pump prices at about $2.69 a gallon, down eight cents from only a week ago.

AAA officials said average U.S. gas prices have increased 35 days in a row for a total of 39 cents per gallon, which is the longest consecutive streak of rising prices since February 2013. U.S. retail gasoline prices reached a low of $2.03 per gallon on January 26 after dropping for a record 123 consecutive days. Gas prices have increased every day since reaching that low.

“Paying $2 for gas will seem like a distant memory for most drivers in the coming weeks,” said AAA spokesman Avery Ash. “Gasoline remains much cheaper than in recent years, but drivers may not appreciate that fact given the steep increase in price over the past month.”

EIA FORECASTS CRUDE OIL TO STAY BELOW $60 A BARREL
In other energy news, the EIA forecasts that international Brent crude oil prices will average $58 per barrel in 2015 and $75 per barrel in 2016, with 2015 and 2016 annual average U.S. West Texas Intermediate (WTI) prices expected to be $3- and $4 per barrel, respectively, below Brent.

The EIA now expects U.S. regular gasoline retail prices, which averaged $3.36 per gallon in 2014, to average $2.33 per gallon in 2015. Most U.S. households are now expected to spend about $750 less for gasoline in 2015 compared with last year because of lower prices. The projected regular gasoline retail price increases to an average of $2.73 per gallon in 2016.

The Energy Department expects the Henry Hub natural gas spot price to average $3.34 per million British thermal units (MMBtu) this winter (2014-15) compared with $4.53 per MMBtu last winter (2013-14), reflecting both lower-than-expected space heating demand and higher natural gas production this winter.

The EIA forecasts Henry Hub natural gas spot price, which averaged $4.39 per MMBtu in 2014, to average $3.05 per MMBtu in 2015 and $3.47 per MMBtu in 2016.