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UPDATE 2-Spate of U.S. refinery shutdowns may worsen crude woes

Mon, 12th Jan 2015 17:39

(Adds two additional refinery disruptions)

By Catherine Ngai

NEW YORK, Jan 12 (Reuters) - Four key U.S. refineries wererecovering on Monday after three fires and cold weathershuttered the plants over the weekend, incidents that may offera temporary bottom to oil product markets while piling morepressure on crude prices.

Plants from Robinson, Illinois to Philadelphia reportedoperational difficulties in the incidents that did not appear tobe linked.

Oil traders watched to see whether the facilities can stickto rigorous start-up schedules that would have all four mostlyback online by the end of the week.

The timing of the three blazes and the fourth incident inwhich a plant was shut due to cold temperatures will intensifytheir impact on the market. Combined, the four plants accountfor more than one-fifth of the total refining capacity for theEast Coast and Midwest regions known as Padds I and II.

Philadelphia Energy Solutions' (PES) 355,000-barrel-per-day(bpd) refinery, the largest on the East Coast, plans to restartby Tuesday after "cascading operational issues," includingseveral small fires and heavy flaring on Saturday, the companysaid.

Husky Energy Inc's 155,000-bpd Lima, Ohio, plantwill be fully up and running by the end of the week, without its25,000 bpd isocracker unit, which was hit by a fire, the companysaid. An explosion and subsequent fire causedextensive damage at the unit, according to sources.

Also, Marathon Petroleum Corp's Robinson, Illinois,refinery plans to restart by Tuesday after a fire shuttered itscrude unit and vacuum distillation unit, a source said.

BP Plc was also restarting a 90,000-bpd crudeunit and reformer on Monday after freezing weather delayedrestart plans over the weekend, sources said. The largest crudeunit at the refinery, with a 240,000-bpd capacity briefly cutback production over the weekend, and returned to normal serviceMonday.

U.S. crude oil prices fell more than 4 percent, whilegasoline dipped some 3.7 percent and diesel nearly3 percent. The impact was most apparent on gasoline and dieselspreads between front- and second-month contracts, which spikedas dealers anticipated less immediate fuel in New York harbor.

"The compounding effect from all these refinery incidentsthis weekend should mean a relatively more supportive tradingenvironment for product markets to start the week," said MattSmith, an analyst at Schneider Electric in Louisville, Kentucky.

The incidents, the first extensive refinery outages inmonths, could be a catalyst to boost a slumping oil productsmarket, according to analysts. In 2012, a fire at the GirardPoint section of the PES plant, which was shut over the weekend,caused cash New York harbor price premiums to rise by severalcents as dealers anticipated a shortfall.

A source familiar with operations at the Lima facility saidthe refinery had sufficient stockpiles of diesel and jet, butgasoline tanks were only at 60 percent of full capacity.

UPSIDE LIMITED

For physical crude oil markets, the outages may add topressure that has been steadily building for months, reducingone source of potential demand for West African crude, tradingat its weakest differentials since 2009 and knocking out asignificant buyer of Canadian synthetic crude.

Lima mostly processes light, sweet crude oil, according toHusky's website. It mainly receives domestic crude, but has alsobeen running about 60,000 bpd of light, sweet crude importedfrom Canada, according to U.S. government data. Reduced buyingcould back more crude into Cushing, Oklahoma, where stocks havealready been rising quickly.

PES relies heavily on railed Bakken crude from NorthDakota and, when competitively priced, imported African crudes.Some traders have indicated a recent narrowing of the U.S. crudeto Brent arbitrage and the threat of imports was deepening theBakken discount.

Meanwhile, Marathon's Robinson processes primarily domesticoil and imported about 67,000 bpd of Canadian crude in October,according to government data.

Whiting is among one of the largest consumers of Canadiancrude. The refinery is the seventh largest in the United Statesand the largest outside of the Gulf Coast.

The impact on product markets may be muted by risinginventories. U.S. gasoline and distillate fuel stocks stagedtheir biggest ever increase last week, rising by more than 19million barrels, U.S. data showed.

A high run rate may also dampen market response. Therefinery utilization rate in the week ended Jan. 2 was 93.8percent, the highest for this time of year since 2005. (Editing by Jessica Resnick Ault, Jonathan Leff and JeffreyBenkoe)

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