Crude and gasoline prices rode a roller coaster over the past two months. NYMEX Light Sweet Crude (WTI) front-month prices surpassed $65/bbl and dipped below $50/bbl between the beginning of the year and mid-February, with gasoline prices often moving in tandem. Tensions between Iran and the U.S., the Phase 1 trade deal between the U.S. and China, and the immense demand threat of the coronavirus outbreak were at the top of the list for global price movers. Amid these nebulous factors, supply chain fundamentals recently provided clear-cut guidance for gasoline markets in the form of multiple refinery outages.
A unit outage at Phillips 66’s 238,000 bpd Bayway, NJ, refinery hampered U.S. East Coast gasoline supply in early February. The PADD 1 market was already tight, following the fire and full shut down of PES’ 335,000 bpd Philadelphia refinery in mid-2019, leaving gasoline prices especially susceptible to any unplanned disruption. Then, a fire at Exxon’s 502,000 bpd Baton Rouge, LA, refinery led to the shutdown of multiple units on February 12. The combined impact of the two major refinery events contributed to higher NYMEX RBOB gasoline front-month prices, up more than $0.08/gal to $1.581/gal between February 6 and February 12.
Bayway Outage Shocked Sensitive PADD 1 Market
The 130,500 bpd fluid catalytic cracker (FCC) at Phillips 66's Bayway refinery in Linden, NJ, shut late February 6 and remained offline as of February 11. Brief elevated flaring occurred prior to the shutdown, according to our real-time refinery sensors. The outage was unplanned, and repair estimates are ranging from a couple of weeks to a month, according to media reports.
The Bayway outage was especially significant because the unit is one of the nation's largest FCCs. The unit comprises 38 percent of PADD 1's operable FCC capacity following the permanent closure of the PES Philadelphia refinery during summer 2019. The PES closure tightened the PADD 1 refined products market by eliminating the East Coast’s largest refinery and removing more than a quarter of total FCC capacity in PADD 1.
Our Refinery Alert subscribers were notified of the Bayway FCC shutdown shortly after 6:00 a.m. EST, more than three hours before news outlets later confirmed the unplanned outage. The advanced notice gave our customers the opportunity to buy gasoline before the resulting price increase.
NYMEX RBOB gasoline front-month prices rose $0.036/gal to $1.5211/gal in the 35 minutes following our February 7 report of the Bayway FCC outage. Following the initial spike, prices retreated to $1.486/gal at 8:47 a.m. EST. RBOB quickly jumped $0.0357/gal to reach another peak of $1.5217/gal before 9:20 a.m. EST as other media sources began reporting the outage at the key PADD 1 refinery. Prior to Friday’s market close, RBOB prices reached an intraday high of $1.5326/gal at 2:01 p.m. EST, a gain of $0.0471/gal after our early morning report, and ended the day at $1.5239/gal.
Baton Rouge Fire Further Disrupted Gasoline Supply
We observed a large fire at Exxon’s 502,000 bpd Baton Rouge, LA, refinery at 12:22 a.m. EST on February 12. Shortly after the fire began, all of the refinery’s crude sections shut due to the incident. The 75,500 bpd catalytic reformer shut later that morning, while a 115,000 bpd FCC and two 32,000 bpd cokers were shut later that day, according to our data. The fire occurred at a natural gas pipeline that is utilized by the crude units, according to media reports.
We were the first to report which units were shut due to the incident, adding visibility to more than 500,000 bpd of crude distillation capacity being knocked offline. Prior to our alert, Exxon and local media reports simply reported a fire.
Baton Rouge is the nation’s fifth-largest refinery by capacity. A timeline for restart of the units is unknown and dependent on restoring natural gas supply, according to media sources.
Without any operational CDU capacity, Wood Mackenzie expects the site to likely operate the single online FCC unit at minimum rates. In this mode of operation, Wood Mackenzie's Petroplan refinery modelling software sees a loss of ~205,000 bpd of gasoline production and ~190,000 bpd of distillate production versus our base-case model. Assuming the remaining FCC is processing 80,000 bpd of fresh feed, and downstream alkylation, hydroprocessing, and hydrocracking units remain operational.
NYMEX RBOB gasoline prices climbed $0.0668/gal to $1.581/gal between February 11 and February 12, as news of the Baton Rouge fire and subsequent outages spread through the market.
The major refinery outages at Bayway and Baton Rouge took center stage for gasoline markets in early-to-mid-February. The supply disruptions had a cumulative effect on prices as refined product supply tightened in multiple U.S. regions. The timeline for restarting units remained uncertain in both cases, further contributing to upward pressure on RBOB prices. We provided customers with accurate, real-time updates on the refinery outages, and will continue monitoring to provide the same clarity on the units’ return to operations.
At Genscape, we deliver alerts for more than 100 refineries across North America and Europe, including 89% of real-time refinery operations in the U.S. and 66% of refining capacity in Alberta, Canada. Our refinery service provides early notice of unplanned outages and precise confirmation of planned maintenance in the fast pace crude and refined product markets. The time between operational events and market reaction is very brief, and time is of the essence when evaluating trading positions to exploit opportunities and mitigate risks. To learn more about our North American Refinery Intelligence, please click here.