November 14th, 2011

Gasoline futures slid to a five-week low as demand for the motor fuel dropped before the U.S. Thanksgiving holiday and refineries completed repairs and increased production.

Gasoline futures sank as consumption in the week ended Nov. 4, averaged over four weeks, was 5.6 percent below a year earlier, Energy Department data showed. Gasoline’s discount to heating oil was the widest in three years. Gasoline traded at a discount to London benchmark Brent crude, and its premium over West Texas Intermediate crude slipped to the lowest level in 11 months.

“We’re seeing the return of a couple of refining units on the Gulf Coast and supplies may be increasing as we head into the holidays,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “In light of reduced demand, supplies appear to be adequate.”

Gasoline futures for December delivery fell 7.06 cents, or 2.7 percent, to $2.5332 a gallon at 11:35 a.m. on the New York Mercantile Exchange. It was the fifth straight decline and longest losing streak since Aug. 4. Prices touched $2.494, the lowest intraday price since Oct. 4.

Valero Energy Corp. (VLO) said Nov. 11 that it was starting a crude unit and coker at its 315,000-barrel-a-day Corpus Christi, Texas, refinery complex after repairs. Refineries traditionally schedule maintenance in the fall after the summer driving season and before the winter heating oil season.

Discount to Brent

Gasoline’s was $6.27 a barrel below Brent, the fifth day it traded at a discount. Refiners on the U.S. East Coast, where Nymex futures are delivered, process oil priced relative to the European benchmark.

“The crack versus Brent is negative so all refiners on a Brent-based crude refining system, their gasoline margins aren’t looking so good,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

The premium of December-delivery gasoline over WTI, or the crack spread, lost $2.14 to $8.23 a barrel. The spread touched $7.27, the narrowest since December.

Heating oil futures surged to a six-month high, outperforming gasoline as the U.S. supply of distillate fuel last week was the lowest since 2008. The spread between the two commodities for December delivery increased to 65.9 cents from 56.78 cents on Nov. 11. It’s the largest gap since November 2008.

“Distillate inventories are not so robust, well below last year and we’re only a couple of months away from winter,” Chirichella said.

December-delivery heating oil rose 1.42 cents, or 0.4 percent, to $3.1858 a gallon on the exchange. Prices touched $3.2004, the highest level since May 4.

Gasoline regular at the pump, averaged nationwide, fell 0.5 cent to $3.417 a gallon yesterday, according to AAA data.

- Barbara J Powell in Dallas at Bloomberg.