Wall Street Journal (pg. C2)  [Printer-friendly version]
July 16, 2007


Oil-Refinery Troubles Cripple Summer Supply; Midwest Is Hardest Hit

By Beth Heinsohn

Rising retail gasoline prices in most U.S. regions could hold their
gains for a while, even after the problems that caused the run-up have
been resolved.

The national average retail price of regular gasoline jumped 9.2 cents
to $3.054 in the last week, the biggest one-week gain since regular
gasoline peaked above $3.20 a gallon in May. Oil-refinery problems in
the last two weeks have tightened gasoline supplies during the summer
driving season, when Americans cover more miles than any other time of

Hardest hit has been the Midwest, where prices have been soaring since
a rain-swollen river flooded, forcing Coffeyville Resources LLC to
shut its refinery June 30. At the time, gasoline supply was already
constrained because the refineries that the region relies on for fuel
have had repeated breakdowns this year, depleting the region's usual
cushion of inventories.

Adding to the supply crunch, BP PLC last Monday shut down the largest
of three crude-oil processing units at its massive Whiting, Ind.,
refinery for unplanned repairs. The company Friday said the unit,
which can process 250,000 barrels a day of crude oil, would likely be
operational sometime early this week.

If gasoline inventories remain low and if more refineries break down
or if there are disruptions from hurricanes, gasoline prices could
remain at their high levels or even climb.

Meanwhile, wholesale prices, which initially led the price increase,
have recently begun to weaken, but it is unclear whether those
declines will extend to the retail level. Marketers might be hesitant
to lower prices right away, lest fuel costs suddenly spike again,
narrowing their margins or wiping them out altogether.

The supply situation in the Midwest -- which can't count on a flood of
seaborne fuel imports to ease the supply crunch -- could take longer
to resolve than similar occurrences in coastal areas. Small- and
medium-size refineries are the main suppliers to local markets, often
with unique blends of motor fuel.

The shutdown of the Coffeyville refinery has forced marketers to
scramble for supply. Tanker-truck drivers have had to drive longer
distances and endure longer-than-usual waits at fuel terminals to keep
up with demand.

The outage could last for months. Two weeks after the shutdown, the
company is still assessing the damage and hasn't said when it expects
to restart the refinery.

The shutdown of the crude-processing unit at BP's Whiting refinery and
two weeks of concurrent unanticipated repairs at Valero Energy Corp.'s
Ardmore, Okla., refinery have further contributed to red-hot wholesale
gasoline prices.

The BP unit that was shut was the third and largest of three crude
units to have a problem at the refinery in the past four months.

Write to Beth Heinsohn at beth.heinsohn@dowjones.com

Copyright 2007 Dow Jones & Company, Inc.