Friday, 13 March 2015 01:25
NEW YORK: US refined oil products futures fell sharply on Thursday on news that refineries expect a quick resumption of crude oil shipments after the Houston Ship Channel reopened and that a new offer from refiners could end a strike by refinery workers.
U.S. April ultra-low sulfur diesel (ULSD) futures were down 4.24 cents, or 2.33 percent, at $ 1.7780 a gallon at 12:47 p.m. EDT (1647 GMT).
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“The ship channel opening allows crude to get to refineries and the expectation is that with margins strong, refiners will produce as much as they can,” said Phil Flynn, analyst at Price Futures Group in Chicago.
After indicating on Wednesday that it was lowering throughput because of the shut Houston Ship Channel, Exxon Mobil Corp said on Thursday the company could “confirm that we are receiving crude shipments soon and will be adjusting rates accordingly” at its giant, 560,500-barrel-per-day (bpd) Baytown, Texas, refinery.
The Houston Ship Channel was fully reopened on Thursday morning, after responders completed initial salvage operations on a damaged chemical tanker and successfully moved the vessel, the Central Texas Coastal Area Committee said.
Refined products futures also felt pressure from news that the industry is expected to make a fresh contract offer as early as Thursday in a bid to end a strike by refinery workers that has lasted 40 days.
“The strike news is mainly psychological in that it hasn’t yet had a big impact on production,” Flynn said. “But a settlement would soothe concerns about the possibility the strike could eventually hurt output.”
Both the gasoline and ULSD crack spreads, based on the U.S. April crude and April products contracts, were over $ 27 per barrel on Thursday.
A crack spread is an indication of refiner profit margins, measuring the difference between the purchase price of crude oil and the selling price of finished products, such as gasoline and distillate fuel, that a refinery produces from the crude oil.
The gasoline crack spread was under $ 20 a barrel the first two months of the year and heating oil was mostly under $ 25 in January before recovering in February.
A strong crack spread creates incentive for refiners to make more product and the expectation of this increase can pressure futures prices.
Copyright Reuters, 2015
