Bp Share News (BP.)

Mon, 6th Aug 2012 20:41

NEW YORK, Aug 6 (Reuters) - Chicago gasoline tumbled 25 cents a gallon on Monday, retreating after a rally the pervious week, as traders switched to a new cycle and the U.S. regulator approved the restart of a shut Canadian oil pipeline.

A short-term squeeze had emerged in the Chicago market last week following a series of hiccups at Midwest refineries and the shutdown of Enbridge's Line 14 crude pipeline that supplies three major refineries near the city.

On Wednesday, differentials for Chicago Conventional gasoline Blendstock for Oxygenate Blending (CBOB gasoline) soared to a one-year high at 45.00 cents over the September RBOB gasoline futures on the New York Mercantile Exchange (NYMEX).

The rally soon spread to the Gulf Coast market, which supplies the Midwest whenever demand outstrips supply. Traders rerouted barrels otherwise destined for New York to Chicago, seeking better values for their fuel and brought a 6 percent hike in New York Harbor's reformulated gasoline (RBOB gasoline) market.

But Chicago CBOB gasoline values retreated in the second half of the week following a selloff and settled at 36.00 cents over futures on Friday, the last day of trading for cycle 1.

On Monday, cycle 2 kicked off trading at 13 cents over NYMEX September futures and fell to 10.50 cents over futures, 25 cents a gallon lower than Friday values.

The switch was the main cause for the discount on Monday, according to veteran traders in the Chicago market. Pipeline batches for the second cycle ship between Aug 10 and Aug 20 and traders have to wait another week to get the shipments at offline terminals.

'Suddenly you're staring at the end of the month and the backwardation of the (futures market) is 21 cents,' said Lewis Adam, president of ADMO Energy LLC in Kansas City, pointing to the premium of September futures against the NYMEX October contract, which stood above 20 cents a gallon at market close on Monday .

This steep difference between the two futures contracts reduces the potential resell value of gasoline at the end of the month when traders can actually take delivery of the fuel, Adams explained.

'That's why people are really scared of the second cycle,' he added.

Also weighing on gasoline differentials was news from the U.S. pipeline regulator on Monday that it will allow Enbridge to restart its crude oil pipeline after a rupture on the line leaked more than 1,000 barrels of crude in rural Wisconsin late last month.

The shutdown had affected crude supplies to major Midwest refiners, including Citgo Petroleum's 167,000 bpd plant in Lemont, Illinois.

Still, some of the refinery problems that started the supply shortage remain.

BP Plc.'s 337,000 barrels-per-day refinery in Whiting, Indiana, the largest producer of refined products in the Midwest, is operating at reduced rates after a fire broke out in a coker on Aug. 23.

Sources close to refinery operations have said maintenance work -- to reverse damage done by the brief fire-- could take anywhere between two to four weeks.

To make matters worse, Citgo had to shutdown a gasoline-making Fluid Catalytic Cracking (FCC) unit at the Lemont refinery last Saturday following an equipment failure.

The company had said it will restart the unit late last week but did not immediately respond to requests for comment.



(Reporting by Selam Gebrekidan; Editing by David Gregorio) Keywords: GASOLINE MARKETS/CHICAGO

(selam.gebrekidan@thomsonreuters.com)(646 223 6125)(Reuters Messaging: selam.gebrekidan.reuters.com@reuters.net)

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