Refineries scale back as storm moves in; oil falls

AP News
Posted: Oct 29, 2012 6:50 PM
Refineries scale back as storm moves in; oil falls

The biggest refineries in the Northeast shut down or throttled back sharply on Monday as Hurricane Sandy moved in. Oil prices fell as it appeared the massive storm will reduce demand by keeping drivers off the road and shutting businesses.

Owners of the six biggest refineries in the Northeast shut down two and cut production at most of the others. That includes a full shutdown of the Phillips 66 refinery in Linden, N.J., the second-biggest in the Northeast at 285,000 barrels per day. The biggest refinery in the area, Philadelphia Energy Solutions, was nearly shut.

Sandy is powerful enough to down trees and power lines and cause widespread flooding. Businesses could also be closed for days. If so, demand for gasoline and other oil products would drop sharply.

The power outages and the shutdown of major cities "may take a toll on demand unlike anything we have seen before," wrote Phil Flynn, a senior market analyst for Price Futures Group, in a report on Monday. "The impact on demand may not last for hours but more than likely for days," he wrote.

Tom Kloza, chief oil analyst at Oil Price Information Services, said he expects gasoline demand to drop by two to five million barrels because of the storm. Typical demand for late October is 59 million barrels a week.

Crude oil prices fell 74 cents, or 1.3 percent, to finish at $85.54 a barrel in trading on the New York Mercantile Exchange. The Nymex was closed Monday because of the storm and evacuation in New York, but electronic trading continued.

Monday's drop continued a decline in oil prices that began after oil got to around $100 a barrel in mid-September.

Gasoline for November delivery rose almost 5.8 cents, or 2.1 percent, to $2.7568, and could shoot higher if refinery damage or long-term shutdowns cause gasoline shortages. Analysts say it's still too early to predict just what the storm's impact would be.

The Philadelphia Energy Solutions refinery, the biggest in the Northeast with a capacity of 330,000 barrels of oil a day, was mostly shut down with some units running only at "minimum safe operating levels," according to spokeswoman Cherice Corley.

Hess shut down its refinery in Port Reading, N.J. PBF Energy Co. reduced output at refineries in Delaware City, Del. And Paulsboro, N.J.

Delta Air Lines Inc. would not say whether its newly-bought refinery in Trainer, Pa. was running or shutting down.

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Nationally, gasoline prices at the pump fell a half-penny from Sunday, to $3.453 per gallon, according to AAA.

Once the storm passes, gas station managers have to work to make sure they have enough gasoline to sell. Those that operate under a major brand such as Mobil, Shell or BP and have supply agreements may be able to get only a portion of their allotment. They have to compete with non-branded gas station operators for the rest — and pay whatever the going rate is.

"The challenge isn't when everyone is hunkered down and there are no cars on the road," says Jeff Lenard of the National Association of Convenience Stores. "The problem is how fast can you be replenished. You don't want to be the guy with the bagged pumps."

In other energy futures trading in New York:

— Natural gas added 7.1 cents to $3.4710 per 1,000 cubic feet.

— Heating oil rose 1.74 cents to $3.1152 per gallon.


AP Business Writers Sandy Shore and Jonathan Fahey contributed to this report.