Commodities Corner: East Coast braces for tighter gas supplies with key refinery set to close permanently

The biggest and oldest refinery on the East Coast plans to shut down permanently following an explosion and fire last week, likely leading to tighter supplies of gasoline and a potential spike in prices at the pump. Read More...

The biggest and oldest refinery on the U.S. East Coast plans to shut down permanently following an explosion and fire late last week, likely leading to tighter supplies of gasoline in the region and a potential spike in prices at the pump.

Philadelphia Energy Solutions intends to close its South Philadelphia refinery within the next month, the city’s Mayor Jim Kenney said Wednesday, according to news reports. That followed a report of the planned closure from Reuters late Tuesday.

The Philadelphia Energy Solutions spokeswoman was unavailable for comment Wednesday morning.

With 335,000 barrels per day of crude oil processing capacity, “the Philadelphia refinery is a major supplier of gasoline and diesel into U.S. east coast markets, yielding approximately 125,000 b/d of gasoline and 110,000 b/d of diesel,” said Marc Amons, senior research analyst at Wood Mackenzie, in a comment emailed to the media.

The closure could make the PADD 1—East Coast region—gasoline supplies “quite tight,” Patrick DeHaan, head of petroleum analysis at GasBuddy, told MarketWatch. The region is “going to be reliant on imports of gasoline, mainly from Europe and or the Gulf Coast. As a result, they could be subject to more pricing volatility in the months and years ahead.”

Still, the “shutdown won’t always be felt directly, but during maintenance season and the run up to summer, PADD 1 may feel more West Coast style pricing volatility and jumps.

On Wednesday afternoon, the average price for a gallon of regular unleaded gasoline stood at $2.687, down 14.3 cents from last month’s average of $2.83, according to GasBuddy. The average in Pennsylvania stood at $2.852 Philadelphia, while drivers in California pay an average of $3.712.

NYMEX futures prices for reformulated gasoline rallied Wednesday, with the July contract RBN19, +4.63% trading up 8.4 cents, or 4.5%, at $1.961 a gallon. Prices got an additional boost after the Energy Information Administration on Wednesday reported a second-straight weekly decline in U.S. gasoline inventories. Prices had climbed 3.9% Friday after news of the refinery explosion and fire. They trade at their highest level since May.