Petral: Inventories, regulations responsible for Midwest gasoline crisis

During the past few weeks, officials from the Clinton Administration and other government bodies have publicly criticized the US refining industry�s performance and response to the surge in conventional and reformulated gasoline (RFG) prices in the Midwest. Petral Worldwide Inc. (PWI), a Houston-based consulting firm, has analyzed the situation and concludes that low inventories and tighter environmental restrictions are responsible for the price spike.


During the past few weeks, officials from the Clinton Administration and other government bodies have publicly criticized the US refining industry�s performance and response to the surge in conventional and reformulated gasoline (RFG) prices in the Midwest. Petral Worldwide Inc. (PWI), a Houston-based consulting firm, has analyzed the situation and concludes that low inventories and tighter environmental restrictions are responsible for the price spike.

PWI analyzed the underlying causes of the rapid rise in gasoline prices in the US Midwest. The analysis focused on RFG production rates from refineries in the Midwest and Gulf Coast and RFG inventories in the Midwest.

PWI says its review of statistics published by the US Energy Information Administration indicates that, nationwide, RFG inventories have been steady at 40-45 million bbl and are in line with 1999 inventories. Based on total US RFG demand of 2.4-2.5 million b/d, RFG inventories are equal to 17.5 days of supply.

Midwest markets, on the other hand, have only 2 million bbl of RFG inventory compared with demand of 300,000 b/d, says PWI. RFG inventories in the region are equal to only about 6 days' supply.

"Effectively, RFG markets in the Midwest have very little usable inventory and rely nearly exclusively on daily RFG production from local refineries and from refineries in the Gulf Coast [region]."

EIA statistics indicate that RFG production from refineries in both the Midwest and Gulf Coast declined by 50-60,000 b/d beginning in mid-May.

"Gulf Coast refineries are the primary swing supply sources of RFG for the Midwest and the East Coast," said PWI. "Since Midwest markets have virtually no spare RFG inventory, the decline in Gulf Coast RFG production quickly created supply shortages in the Midwest markets.

"This analysis shows that EPA was unprepared for RFG supply problems in the Midwest," the firm concludes. "The decline in refinery RFG production is directly related to EPA�s insistence that stricter RFG regulations be implemented as scheduled on June 1. Furthermore, EPA officials denied all applications for temporary waivers to stricter RFG regulations."

More in Government