Houston — With a new law hampering crude-by-rail deliveries into Washington already in effect, drivers in the state may be faced with even higher gasoline prices as local refineries mull running at lower levels.
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According to market sources, the Pacific Northwest is more sensitive to drops in refinery output than other parts of the US. Washington has the third-most expensive gasoline market in the US, according to auto club AAA.
"The West Coast gasoline market is different," one broker in the region said Thursday. "The West Coast has far fewer pipeline connections and liquidity in the market is poor."
Seattle suboctane reached NYMEX RBOB plus 57 cents/gal early this week, nearly 42 cents higher than this time last year.
"Brokerages and traders have a smaller footprint here, which means that when refinery production drops or someone in the market is caught short on gasoline, options to resupply are limited," the broker said. "The result is a volatile USWC market where price movement is mostly driven by the supply side."
The new law -- which came into effect in July -- prohibits the unloading of any crude from a rail tank car unless the oil has a vapor pressure of less than 9 psi, which in practice could act as de facto ban on Bakken crude shipped by rail.
While the long-term impact of this on law on crude flows into Washington remains to be seen, with legal challenges in the courts already underway, it seems clear that a sustained drop in the state's refining activity would most likely punish drivers with higher retail gasoline prices.
West Coast refineries ran at just 78% of capacity last week, US Energy Information Administration data showed this week, their lowest since November 2016 and 19.5% lower than this time last year.
Adding pressure to already low run rates, Phillips 66's 105,000 b/d Ferndale refinery's crude slate is expected to be affected by new limitations on crude-by-rail shipments.
"Phillips 66 has drastically reduced the scheduled deliveries of crude oil to be unloaded at the Ferndale Refinery rail rack for the remainder of the year, including a 30-day period when no barrels of crude oil will be unloaded at the crude oil rail facility," Ferndale manager Jolie Rhinehart said in a September 23 letter to the US Pipeline and Hazardous Materials Safety Administration.
"This reduction in rail rack unloading volumes is solely because of [the Washington state law] and comes at a significantly negative impact to refinery profitability," Rhinehart wrote.
In previous years, Washington's refineries imported around 175,000 b/d of crude by rail, the vast majority of which originated in North Dakota.
North Dakota shipped about 220,000 b/d of crude to the West Coast in July, according to the most recent data available from the EIA. That's up from 179,000 b/d in June and compared to 139,000 b/d during July 2018.
Of that total to the West Coast, about 175,000 b/d of that crude goes to Washington, sources say. One Bakken trading source said that the Phillips66 Ferndale refinery takes about 30,000 b/d of Bakken crude by rail.
BP's Cherry Point and Marathon's Anacortes refineries take most of the rest.
-- Seth Clare, Laura Huchzermeyer, Kristian Tialios, Brian Scheid, firstname.lastname@example.org
-- Edited by James Bambino, email@example.com
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