March 18, 2014
Las Vegas Working to Get Fuel Resupplied

Officials in Las Vegas continue to work feverishly to get McCarran International Airport resupplied with jet fuel after available airport stocks dwindled to just a half-day following the discovery of some off-spec fuel in several airport tanks serving the airport's fuel hydrant system.

A team of inspectors has arrived to try to treat the off-spec fuel, but that process may take several days, sources familiar with the situation tell OPIS.

Meanwhile, airlines flying out of Las Vegas have been asked to fill aircraft fuel tanks at other airports before arriving at McCarran. Fuel is also being trucked into the airport and airline officials are working with Kinder Morgan to schedule shipments of fuel to Las Vegas directly from the Los Angeles refining center. That material would go to Colton before being shipped to Las Vegas.

"Getting material from Los Angeles is our best option," one airport source told OPIS. "Truck material is arriving but only about a quarter of the airport's daily demand can be satisfied via transport deliveries," the source explained. "We are hopeful Kinder Morgan can accelerate shipments from Los Angeles and then move the material on the 14 inch line from Colton instead of the 8 inch line," airport sources tell OPIS.

Tanks holding jet fuel north of the airport were tested, and that fuel passed inspection so is being shipped to airlines at McCarran.

"That is enough supply to last through Sunday," one source told OPIS. "Hopefully between now and then we can get Kinder Morgan to accelerate fuel deliveries, continue to get transport truck deliveries, and continue to have airlines reduce their uplift to save fuel," the source explained.

The demand for more fuel from Los Angeles comes just as area refiners trimmed back jet fuel output to their lowest weekly rate in nearly a year. The weekly Department of Energy numbers indicate jet production in the West to be 382,000 b/d, a 13% decline from the prior week and 17% under average rates of the first quarter.

West Coast jet stocks did drop 300,000 barrels to 10.2 million barrels, so supplies are ample. Incremental spot barrels of jet remain discounted to the NYMEX by almost 14cts/gal, yielding the cheapest numbers in the country.

--Ben Brockwell, bbrockwell@opisnet.com

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March 18, 2014
New Jersey's Gasoline Tax Hike Plan May Hurt Cross-State Business

New Jersey gasoline marketers could lose substantial cross-state business from drivers in New York and Pennsylvania if the Garden State goes ahead with its plan to double its gasoline sale tax over the next five years, said Sal Risalvato, executive director of the New Jersey Gasoline, C-Store and Automotive Association (NJGCA) on Tuesday.

New Jersey is considering a proposal to increase its gasoline tax by 4cts/gal each year over the next five years. The current gasoline tax is at 14.5cts/gal, the second lowest in the country behind Alaska. Also, New Jersey has not raised its gasoline tax for 22 years since 1992.

"There are many members of my association who operate businesses at or near the Northern and Northwestern borders of the State. Our members report high volumes of consumers coming from Pennsylvania and New York to purchase their gas, since our lower tax translates to lower prices. If the gas tax increases, prices will follow," Risalvato said.

"Not only can my members expect to lose this business, but the State of New Jersey can expect to lose the tax revenue that came from those out-of-state consumers," he said.

Risalvato told OPIS that the gasoline tax hike proposal is part of the state budget, which is expected to be voted on before the end of June. The budget will have to go through the Senate and Assembly hearings and voting before it goes to the governor for approval.

Although New Jersey could possibly hike its gasoline tax on July 1 at the earliest if everything goes well, New Jersey Governor Chris Christie (R) could be a stumbling block in the passage of that bill as he had already publicly said that he would not sign the gasoline tax hike proposal, Risalvato said.

Risalvato said that taxes in New Jersey are already too high -- some of the highest in the nation. Our current, relatively low, gas tax is one of the only "breaks" that New Jersey citizens get.
  
Risalvato also expressed concern about the trickle-down effect of a higher gas tax.

"Delivery costs will increase as a result of the rising gas tax. Transportation and shipping costs will go up, not only as it relates to gasoline, but across the board. These costs will all be passed on to the consumer -- not just at the pump, but whenever shipping, transportation or delivery costs are factored into the prices of goods and services in our state," he said.

OPIS reported on Jan. 6 that Pennsylvania hiked its retail regular gasoline prices significantly by 9.7cts/gal, almost matching the 9.5-ct/gal gasoline tax hike from Jan. 1.

In the Northeast, drivers near the borders have the option to seek out the cheapest fuel in neighboring states. New York has the highest price, followed by Pennsylvania.

New York retail prices are 14cts/gal higher than Pennsylvania and 40cts/gal higher than New Jersey, according to daily retail price data issued by GasBuddy.

--Edgar Ang, eang@opisnet.com

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March 18, 2014
Sweet Crude in West Texas Disconnects from NYMEX; Refinery Gap Widens

NYMEX prices for WTI have been remarkably stable this year, but light crude oil prices from the West Texas fields continue a rapid descent, with indications that huge discounts to futures could prevail until midsummer. Many futures traders are largely unaware of the bargain-basement deals for WTI in source markets, but the cheap barrels could threaten NYMEX stability for days, weeks or months.

The past two trading days have seen sellers slice asking prices for WTI near Midland Texas to $12.25-$12.50/bbl off the April NYMEX settlement. At the close of business yesterday, that implied an outright value of just under $86/bbl in West Texas. Earlier this year, the two locations traded close to parity, and it is believed that the current $12.50/bbl discount represents the all-time "markdown" price for WTI in the source markets.

It only costs $3-$3.75/bbl to ship the crude to the Texas Gulf Coast via various pipelines, but observers say that all available line space is committed. New pipeline capacity is coming around midyear, thanks to two projects that involve Magellan. Magellan's existing Longhorn line is capable of moving about 225,000 b/d of crude from West Texas to the Houston area, and a 50,000-b/d expansion should occur during the summer. Magellan is also involved in a joint venture with Occidental Petroleum known as the BridgeTex Pipeline, and plans call for a mid-2014 startup. The conduit will ultimately bring 300,000 b/d of Permian Basin crude from Colorado City, Texas, to Houston area refiners.

But until either line is completed, there is plenty of crude oil that is somewhat stranded in the fast growing Permian Basin. April prices of $86/bbl for WTI there were about $22/bbl below the cost of foreign light sweet crude in the Northeast, or Alaska North Slope crude for California refineries. It's anticipated that some unit trains will be put together to move barrels to the Northeast, where there is plenty of infrastructure to handle rail. Several offloading facilities for California are in the works, but it will be 2015 before most can handle rail from Texas.

Some market observers believe that crude oil sellers in the Permian Basin could grow more desperate in the days ahead. It's not uncommon for crude discounts to widen ahead of scheduling deadlines, but the current double-digit discounts for April crude began weeks ahead of the deadline. Some sources believe that the last April WTI in West Texas could ultimately flirt with an $80/bbl price before scheduling closes out.

The high production in the West Texas fields may not have yet impacted NYMEX futures prices, but it is sure to affect inventory estimates. Oil analyst Andy Lipow predicts steady increases in regional Gulf Coast crude oil stocks into spring and believes that there might be another build of 4 million bbl to 5 million bbl in PADD3 crude oil inventories this week.

Those recent and expected build-ups in Gulf Coast crude inventories have impacted other crude oil benchmark numbers. The price of Light Louisiana Sweet (LLS) crude is now pegged about $3/bbl above the NYMEX futures price, compared with $6-$10/bbl premiums earlier this year.

That narrow price relationship means that shippers who committed to moving Cushing barrels south via new pipelines to Texas and Louisiana are doing so not because it makes economic sense, but because they have long-term shipping commitments at fixed costs. A Cushing barrel of sweet crude has a theoretical price of over $100/bbl by the time it gets to the Texas Gulf Coast or to Louisiana.

Compare that with crude costs of less than $90/bbl available to some refiners who have pipeline space to move WTI from West Texas to the Houston area.  

There is hardly equality among Gulf Coast refiners. The gasoline crack for a refiner running light sweet crude from Cushing, or say LLS, might be making do with a spring gasoline crack of less than $10/bbl. A refiner fortunate enough to have access to West Texas spot barrels is looking at a gasoline margin at least twice that level.

--Tom Kloza, tkloza@opisnet.com

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