Gasoline rose almost 6 percent on expectations that the shutdown of a refinery near Chicago will strain supplies for the rest of the year.
Citgo Petroleum Corp said its 160,000-barrel-a-day refinery in Lemont, Illinois, will be closed for five to six months because of damage from a fire last week. The shutdown has caused wholesale prices in the Midwest to surge, luring gasoline from other regions. The supply disruption has coincided with stronger-than-normal demand in the US.
"Gasoline is taking off and it's definitely due to the Chicago issue," said Ed Silliere, vice president of risk management at Energy Merchant LLC in New York. "You are starting to see trucks bring gasoline to the Chicago region from places like Pittsburgh, and barges from the Gulf Coast" will also arrive.
Gasoline for September delivery rose US$0.463, or 5.9 percent, to US$0.8357 a gallon on the New York Mercantile Exchange, the highest closing price since June 19. Prices climbed 13 percent this week, the biggest gain since last October.
Gasoline futures, which represent wholesale prices, are down 12 percent from this time last year.
"There will be a ripple effect felt as far away as Europe as cargoes get sent to New York to replace cargoes that are now going to the Midwest from the Gulf Coast," Silliere said.
The Chicago and Milwaukee regions require cleaner-burning gasoline using ethanol, a corn-based additive available mostly in the Midwest. A supply shortfall in June 2000 caused by a pipeline shutdown sent retail prices to records.
The ethanol requirement makes it difficult for refineries outside the Midwest to make up for the shortfall in the region because they must switch over from making other types of gasoline, including those that are blended with a more common additive, methyl tertiary butyl ether.
"There has to be a large price premium for Gulf Coast refiners" to make Midwest gasoline, said Aaron Brady, a senior analyst at Energy Security Analysis Inc in Wakefield, Massachusetts. "It's difficult to make the base blend for mixing with ethanol, and they are not used to making it." Average Chicago retail gasoline rose US$0.024 to US$1.714 a gallon yesterday, the American Automobile Association said today on its Web site. The price has risen 26.6 percent over the past month.
The national average gasoline price was US$1.442 a gallon, down from a record US$1.718 in May and down US$0.162 from this time last year, according to AAA figures.
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