January 12, 2015 / 5:43 PM / 3 years ago

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

5 Min Read

(Adds two additional refinery disruptions)

By Catherine Ngai

NEW YORK, Jan 12 (Reuters) - Four key U.S. refineries were recovering on Monday after three fires and cold weather shuttered the plants over the weekend, incidents that may offer a temporary bottom to oil product markets while piling more pressure on crude prices.

Plants from Robinson, Illinois to Philadelphia reported operational difficulties in the incidents that did not appear to be linked.

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

The timing of the three blazes and the fourth incident in which a plant was shut due to cold temperatures will intensify their impact on the market. Combined, the four plants account for more than one-fifth of the total refining capacity for the East 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 restart by Tuesday after "cascading operational issues," including several small fires and heavy flaring on Saturday, the company said.

Husky Energy Inc's 155,000-bpd Lima, Ohio, plant will be fully up and running by the end of the week, without its 25,000 bpd isocracker unit, which was hit by a fire, the company said. An explosion and subsequent fire caused extensive damage at the unit, according to sources.

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

BP Plc was also restarting a 90,000-bpd crude unit and reformer on Monday after freezing weather delayed restart plans over the weekend, sources said. The largest crude unit at the refinery, with a 240,000-bpd capacity briefly cut back production over the weekend, and returned to normal service Monday.

U.S. crude oil prices fell more than 4 percent, while gasoline dipped some 3.7 percent and diesel nearly 3 percent. The impact was most apparent on gasoline and diesel spreads between front- and second-month contracts, which spiked as dealers anticipated less immediate fuel in New York harbor.

"The compounding effect from all these refinery incidents this weekend should mean a relatively more supportive trading environment for product markets to start the week," said Matt Smith, an analyst at Schneider Electric in Louisville, Kentucky.

The incidents, the first extensive refinery outages in months, could be a catalyst to boost a slumping oil products market, according to analysts. In 2012, a fire at the Girard Point section of the PES plant, which was shut over the weekend, caused cash New York harbor price premiums to rise by several cents as dealers anticipated a shortfall.

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

Upside Limited

For physical crude oil markets, the outages may add to pressure that has been steadily building for months, reducing one source of potential demand for West African crude, trading at its weakest differentials since 2009 and knocking out a significant buyer of Canadian synthetic crude.

Lima mostly processes light, sweet crude oil, according to Husky's website. It mainly receives domestic crude, but has also been running about 60,000 bpd of light, sweet crude imported from Canada, according to U.S. government data. Reduced buying could back more crude into Cushing, Oklahoma, where stocks have already been rising quickly.

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

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

Whiting is among one of the largest consumers of Canadian crude. The refinery is the seventh largest in the United States and the largest outside of the Gulf Coast.

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

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

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