Gasoline Futures Soar As Largest East Coast Refinery Set To Permanently Close
RBOB Gasoline futures jumped overnight, accelerating their recent ascent ever since the explosion and massive inferon at the Philadelphia Energy Solutions (PES) plant, following a Reuters report that the largest east coast refinery is expected to seek to permanently shut its oil refinery in the city after a massive fire caused substantial damage to the complex.
Shutting the refinery, the largest and oldest on the U.S. East Coast, would result in not only hundreds of lost jobs but also sharply higher gasoline prices as gasoline supplies are squeezed in the busiest, most densely populated corridor of the United States.
PES is expected to file a notice of intent with state and federal regulators as early as Wednesday, setting in motion the process of closing the refinery, the sources said.
The refinery, which could still change its plans, is also expected to begin layoffs of the 700 union workers at the plant as early as Wednesday, Reuters reported. The layoffs could include about half of the union workforce, with the remaining staff staying at the site until the investigation into the blast concludes.
As reported previously, the 335,000 barrel-per-day (bpd) complex, located in a densely populated area in the southern part of the city, erupted in flames in the early hours on Friday, in a series of explosions that could be heard miles away and which some compared to a meteor strike or a nuclear bomb going off.
The cause of the fire was still unknown as of Tuesday, though city fire officials said it started in a butane vat around 4 a.m. (0800 GMT). It destroyed a 30,000-bpd alkylation unit that uses hydrofluoric acid to process refined products. Had the acid caught fire, it could have resulted in a vapor cloud that can damage the skin, eyes and lungs of nearby residents.
Prior to the massive inferno, the refinery had suffered from years of financial struggles, forcing it to slash worker benefits and scale back capital projects to save cash. It went through a bankruptcy process last year to reduce its debt, but its difficulties continued as its cash on hand dwindled even after emerging from bankruptcy in August; some have speculated that cost cutting resulted in the structure becoming fragile and susceptible to accident.
After bankruptcy, Credit Suisse Asset Management and Bardin Hill became the controlling owners, with former primary owners Carlyle Group and Sunoco Logistics, an Energy Transfer subsidiary, holding a minority stake.
Last Friday’s blaze was the second in two weeks at the complex, spurring calls from Philadelphia’s mayor for a task force to look into both the cause and community outreach in the wake of the incidents. A spokesperson for Mayor Jim Kenney declined to comment on the potential closure of the plant.
That may be difficult as investigators on the scene are said to be dealing with unstable structures that need to be certified by engineers, slowing down the inquiry, city officials said. The investigation could ultimately take months or perhaps years. Additionally, the state Department of Environmental Protection said they have concerns about the integrity of storage tanks on site, the agency said on Tuesday. The U.S. Chemical Safety Board is also investigating the incident, according to Reuters.
While none of this will make much news outside of Philly, what will impact all East Coast drivers is that gasoline futures rose as much as 5.4% on Wednesday to $1.9787 a gallon, the highest since May 23. The front month price was at $1.945 early on Wednesday.
Futures are up 8.9% since Thursday’s close.
NY Gasoline prices have surged back into a premium over US Gulf Gasoline…
All of which will drag, as always with a lag, the price of gas at the pump notably higher…
The rally in U.S. gasoline futures has pushed U.S. gasoline prices above European and Asian markets, raising the prospects for US imports. According to Matthew Chew, oil analyst at IHS Markit, “chances are that (the wider price spread) could open up the arbs between U.S. Gulf/Europe and [the East Coast] PADD 1.”