Gasoline prices extended their upward climb Tuesday, jumping another penny overnight while oil and gas futures rose on concerns about gasoline production.
The market received new reports of refinery problems, exacerbating concerns from Monday, when BP PLC was forced to shut down a huge oil processing unit for maintenance in Whiting, Ind. Investors were again questioning the adequacy of gasoline supplies, putting upward pressure on gas futures.
“Gasoline is providing some leadership as a result of the refinery problems we've see,” said Andrew Lebow, senior vice president at Man Financial Inc.
At the pump, gas prices jumped a cent overnight to a national average of $2.975, according to AAA and the Oil Price Information Service. Retail prices, which typically lag futures prices, peaked at $3.227 a gallon in late May, then fell steadily until last week. Prices have risen 2.6 cents since then.
Analysts attribute this year's high gas price to tight supplies. Refiners have experienced an unusual number of unexpected outages this year, which has kept gas inventories low. The recent flooding of a refinery in Coffeyville, Kan., intensified the problem in the Plains and front-range Rockies states, sending prices there sharply higher. Those price increases are seen as the main reason for the recent jump in average national prices.
Light, sweet crude for August delivery rose 56 cents to $72.75 a barrel on the New York Mercantile Exchange. The contract fell on Monday after rising for seven straight days to 10-month highs. Gasoline for August rose 2.94 cents to $2.374 a gallon on the Nymex.
August Brent crude rose 78 cents to $76.56 a barrel on the ICE Futures exchange in London, its highest point since August 2006.
In other Nymex trading Tuesday, August heating oil rose 3.04 cents to $2.1232 a gallon, while natural gas futures rose 18.9 cents to $6.599 per 1,000 cubic feet.
Analysts have predicted for some time that retail gas prices were bound to stop falling. Gas futures have rallied in recent weeks as refiners have struggled to keep their facilities pumping out gasoline. The Energy Department's Energy Information Administration last week reported that refinery utilization increased to 90 percent. But that is well below the 94 percent to 95 percent of operating capacity analysts believe refiners must operate at to adequately meet summer driving demand.
In this week's EIA inventory report, due Wednesday, analysts surveyed by Dow Jones Newswires expect that refinery utilization grew by 0.5 percent in the week that ended July 6, on average. That should boost gasoline inventories by about 640,000 barrels, the analysts predict.
Crude oil inventories are expected to fall by 600,000 barrels, and inventories of distillates, which include heating oil and diesel fuel, are expected to rise by 800,000 barrels.
On Monday, BP shut down a 250,000 barrel per day crude processing unit at its Whiting refinery to repair a leak. It's unclear how long the unit, which is itself larger than many refineries, will be out of commission. Other problems have kept the 410,000 barrel-per-day facility from operating at full capacity since March.
Gas and oil futures also got a boost on Tuesday from reports of problems at a Valero Energy Corp. refinery in Delaware, and a delay restarting an Exxon Mobil Corp. refinery in Texas that shut down for maintenance in May.
Despite the refinery problems, James Cordier, president of Liberty Trading Group in Tampa, Fla., thinks oil and gasoline prices are near their peak. With oil inventories at nine-year highs, it's just a matter of time until there is a major market correction, he said.
“As we get through driving season … I think you're going to see quite a weaker market this fall,” Cordier said.
Retail gas prices will likely continue rising for another week or so, Cordier said. But the fact that prices at the pump took so long to reverse declines and follow futures prices higher is further evidence that futures rose more due to speculative buying than market fundamentals, he said.
