Flooding, refinery outages push gasoline prices higher in U.S. West

Source: By Stephanie Kelly and Jarrett Renshaw, Reuters • Posted: Thursday, April 4, 2019

April 3 (Reuters) – Severe flooding in the U.S. Midwest this season has had ripple effects for drivers further west, as washed-out rail lines disrupted ethanol supply, causing spikes in gasoline prices and even forcing some retail stations to shut down.

Ethanol producers in flood-ravaged states have had trouble getting their product to markets over the past two weeks, as rail lines have been shut or hampered by rising waters. Separately, a spate of refinery outages in California has tightened fuel supplies, contributing to higher prices.

Recent outages included Valero Energy Corp’s controlled shutdown of its Benicia, California refinery and Phillips 66’s planned maintenance work at its Los Angeles refinery.

Most U.S. gasoline includes roughly 10 percent corn-based ethanol as required by federal law. Ethanol also often serves a cheap octane booster and shortages in the biofuel can force blenders that supply retail stations to cut or halt operations.

Most U.S. ethanol is produced in the Midwest corn-belt states. Rail lines get the product to coastal markets.

States such as California and Arizona have been especially hit by gasoline and ethanol supply disruptions, said Patrick DeHaan, head of petroleum analysis at tracking firm GasBuddy.

The average price in both states has risen faster than the national average in the last month, according to American Automobile Association data. Both Arizona and the national average for a regular gallon of gasoline was $2.42 a month ago; Arizona is now at $2.78, while the country is at $2.70.

“You have the rising price of gasoline because of constrained supply, and the same thing with ethanol. That’s creating an environment where you’re getting a double-whammy of supply issues on both sides,” DeHaan said.

The floods forced Midwest ethanol production to fall by some 13 to 15 percent, traders told Reuters, leaving blenders and retail gasoline racks short on ethanol.

“It’s been a real mess, with ethanol shortages hitting regions, then a unit train comes and it’s okay. But then the next day, another shortage pops up,” one ethanol trader said.

Ethanol futures on the Chicago Board of Trade spiked in mid-February to $1.43 per gallon, a six-month high. They have pared gains since then and last traded at $1.31 per gallon on Wednesday.

The RBOB futures contract on NYMEX traded at $1.9512 a gallon on Wednesday. (Reporting by Stephanie Kelly and Jarrett Renshaw; Editing by David Gregorio)