Refinery woes bolster USGC gasoline, distillates market: trade

Houston (Platts)--1Dec2006

Maintenance delays and unexpected mechanical problems that have hit US
Gulf Coast refineries are helping push spot gasoline and distillates prices
higher than normal for this time of year, Gulf Coast products traders and
market observes said Friday.

Crack spreads for USGC conventional unleaded gasoline have climbed nearly
$5/barrel in the past three months, from an average of $1.58/barrel in
September to $6.49/barrel in November, according to Platts data.

USGC low sulfur diesel crack spreads jumped more than $3/barrel, from
$10.86/barrel in September to $14.50/barrel in November.

Gulf Coast products traders said spot gasoline and distillates products
on the USGC are also trading at higher-than-normal price differentials versus
the NYMEX for late fall.

"It's making the cash market very, very strong," said one Gulf Coast
gasoline trader, referring to the refinery problems. "These are all very
strong, non-summer numbers."

One of the most recent mechanical problems brought down a coker unit at
Valero's 295,000 b/d refinery in Port Arthur, Texas.

Valero said this week that gasoline production would be cut by up to
450,000 barrels and distillates production by as much as 400,000 barrels at
the refinery while it repairs the unit. The cause of the problem was a leak on
a blowdown line, Valero reported to Texas state regulators.

Refinery problems are hard to track since companies consider this
proprietary information, but several other refineries have been affected by
either turnaround delays or unexpected mechanical problems this month.

They include: Shell's 333,700 b/d refinery in Deer Park, Texas; Motiva's
226,500 b/d refinery in Norco, Louisiana; and Total's 232,000 b/d refinery in
Port Arthur, Texas.

"It has been one thing after another," said one source close to the Gulf
Coast refining sector, referring to the recent spate of delays and mechanical
problems. "You have all these things that start adding up."

Recent Gulf Coast refinery problems and turnaround delays are reflected
in PADD III utilization rates, which are down this month compared with the
same period inprior years, figures from the Energy Information Administration
(EIA) show.

PADD III includes Alabama, Arkansas, Louisiana, Mississippi, New Mexico
and Texas.

This month, 89% of the 8.274 million b/d refinery capacity in PADD III
was being used, according to the EIA. There are 56 refineries in PADD III.

The latest utilization rate is down from a 95% rate in November 2004 and
November 2003, and 94% in November 2002, according to the EIA.

Traders said a comparison with the November 2005 period is meaningless
since an unusual number of refinery units were down at the time because of
hurricanes Katrina and Rita.

One products trader said he expects spot gasoline and distillates prices
to soften soon as more refineries come up from turnaround.

"We're just days away from seeing better offers from refineries," he
said.

---Michael Easterbrook, michael_easterbrook@platts.com

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