Oil and gasoline futures prices rose in lethargic preholiday trading Tuesday on renewed concerns about gasoline supplies and positioning in advance of Thursday's government inventory report.
“I think that you just have people covering their short (positions) coming in to the holiday weekend,” said Stephen Schork, an energy trader and editor and publisher of The Schork Report. U.S. financial markets were closing Wednesday for the July Fourth holiday.
While analysts expect Thursday's report will show gasoline inventories increased last week, the closure of a Kansas refinery due to flooding raised new concerns about gasoline supplies, sending futures prices higher, said Jack Hunter, an energy trader at FC Stone Group in Kansas City, Mo.
Light, sweet crude for August delivery rose 32 cents to settle at $71.41 a barrel on the New York Mercantile Exchange, a new 10-month high. Gasoline for August rose 1.57 cents to settle at $2.2644 a gallon.
August Brent crude added 30 cents to settle at $72.93 a barrel Tuesday on the ICE Futures exchange.
In other Nymex trading, August heating oil futures rose 0.44 cent to $2.0662 a gallon while natural gas prices rose a cent to settle at $6.754 per 1,000 cubic feet.
At the pump, gas prices continued to slip fractionally lower. The average national price of a gallon of gas fell 0.4 cent to $2.953 overnight, according to AAA and the Oil Price Information Service. Gas prices peaked at $3.227 a gallon in late May.
Gas and oil prices have risen in recent months on concerns domestic refining capacity is not keeping pace with demand. The most recent rally, which has boosted oil prices above $71 for the first time in 10 months, was driven largely by a report from the Energy Department's Energy Information Administration last Wednesday showing that gasoline inventories fell when analysts had expected an increase.
The closure of a 108,000 barrel-per-day refinery in Coffeyville, Kan., due to flooding over the weekend added to those concerns. The Coffeyville Resources facility is capable of producing 2.1 million gallons of gasoline a day.
The loss of the refinery, which remains largely under water, means retailers in Kansas and other surrounding states are having a harder time supplying their pumps with gasoline. Hunter said wholesale gasoline prices in the Midwest have jumped 25 cents over futures prices. Local retailers are scrambling to buy gasoline from suppliers outside the immediate area, he said.
“It's kind of a domino effect,” Hunter said.
On an otherwise slow trading day, news out of Coffeyville, Kan., is enough to affect futures prices, he said.
“Any type of story that's as dramatic as that … you're going to see some guys getting in long positions,” Hunter said.
Schork thinks the Coffeyville refinery is too small to have much national impact on prices. But he did note that when volumes are thin, a single block trade could affect prices.
“Any kind of big order that comes through tends to skew the market,” Schork said.
In this week's inventory report, which will be delayed until Thursday due to the holiday, analysts surveyed by Dow Jones Newswires expect gasoline inventories on average to increase by 700,000 barrels.
Refinery utilization is expected to rise by 1.1 percentage points to 90.5 percent, building on last week's gain. That increase in refinery runs is expected to tap into crude inventories, which are at 9-year highs. Analysts, on average, expect crude inventories to fall by 500,000 barrels.
Distillate inventories, which include heating oil and diesel fuel, are expected to decline by 200,000 barrels.
