US heating oil supply effort rebounds on gasoline prices

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WIRE:10/20/2000 15:02:00 ET US heating oil supply effort rebounds on gasoline prices

NEW YORK (Reuters) - Lofty U.S. gasoline prices are poised to make an unseasonal surge in coming weeks as refiners shift production efforts to heating oil and leave motor fuel supplies to thin out, experts said Friday. Refiners in the United States have cut their gasoline production by more than five percent in the past month as they turn attention to producing distillates like home heating oil ahead of winter, according to a report by Deutsche Banc Alex. Brown.

The trend has already dented spare gasoline supplies at a time when it normally grows and has tagged on a few cents to pump prices. And it is fostering concern that the focus on winter supply may quietly be creating the conditions for a repeat next year of this summer"s gasoline spike. "We definitely expected to see some supply builds, but they didn"t happen," said Alan Struth, analyst for Honneywell Hispecs Solutions in Houston. "Things will potentially be on the leaner side." Retail gasoline prices jumped nearly four cents a gallon to $1.54 nationwide last week, according to the U.S. Department of Energy -- the first increase in three weeks and still within sight of all-time price highs seen in June and July. Wholesale prices, meanwhile, surged as much as a nickel a gallon in the Midwest and Northeast this week, signaling further hikes at the pump as the costs get passed on to consumers. The price strength comes amid a decline in national inventories of more than three-and-a-half million barrels over last week, according to data from widely-watched industry group the American Petroleum Institute (API).

Historically, gasoline supplies grow during the fall and over the winter when Americans tend to log in fewer miles on the road, allowing for healthy stocks in the spring ahead of what the industry calls "driving season." But experts say an early panic over possible heating oil shortages this winter has turned the seasonal direction of gasoline prices and supplies on its head. "A shift in refinery yields -- not only to distillate but also to jet fuel -- has led to a contra-seasonal draw in gasoline inventories," said Deutsche Banc. "Once again gasoline stocks have fallen to the low end of a three year range." The White House has reacted to concerns over possible shortages by releasing emergency oil from the national stockpile, setting up a heating oil reserve, and initiating discussions with Northeast states over whether they wish to lower clean-air standards on the fuel to ease consumer prices. Yet for all the effort refiners are putting into heating oil production, inventories for the key heating fuel also remain thin ahead of winter. According to the API, heating oil inventories in the Northeast, the world"s largest heating oil market, remain less than half of what they were last year. And some analysts argue that the all-out effort to combat heating oil shortages this winter could come home to roost next summer, when the U.S. refining network"s struggle to cope with robust demand will again force prices up. "Consumption should increase by 2 percent, assuming economic growth continues and Americans keep buying SUVs (sport utility vehicles). Unfortunately, I see no signs that the capacity to manufacture reformulated gasoline for California or the Northeast will increase at the same rate," said analyst Philip Verleger.

http://abcnews.go.com/wire/World/reuters20001020_2392.html

-- Martin Thompson (mthom1927@aol.com), October 20, 2000

Answers

This reformulated gasoline stuff is really the fly in the ointment.

-- Loner (loner@bigfoot.com), October 20, 2000.

Looks like we're all gonna take a hit in the pocketbook, or sit in line, at gas stations soon.

-- Buck (bigbuck@trailways.net), October 20, 2000.

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