Gasoline futures surged as much as 7.6% Wednesday before giving back nearly all the gains as traders and analysts quickly switched their outlook on how Hurricane Sandy has impacted gasoline supplies.
Gasoline futures for November delivery jumped as high as $2.938 per gallon mid-morning--6.3% above Wednesday's close--due to panic buying by wholesalers of contracts for delivery of the motor fuel ahead of Wednesday's expiration of the November gasoline futures contract, market participants said. They added the wholesalers were caught in a classic "short squeeze"--in which sellers forced prices higher because they knew the wholesalers needed the physical fuel promised in the expiring futures contracts for their own deliveries.
The squeeze was accentuated by fears of supply shortages along the U.S. East Coast due to problems caused by the storm, such as power outages, which created problems with the region's energy infrastructure, such as refineries and pipelines.
But after futures hit their high for the day, prices plunged, touching as low as $2.729 per gallon, 1% below Wednesday's close. Traders and analysts said new information reassured the market that Sandy hadn't done as much damage as feared to refineries and pipelines.
"There were real fears gripping the marketplace in the morning" about a supply shortage, said Again Capital trader John Kilduff. "As the situation became more clear, [prices pulled back], because we knew there hadn't been any cataclysmic effects on refining infrastructure."
Gasoline settled Wednesday at $2.762 per gallon, up 3.3 cents, or 1.2%. That was a slightly bigger jump than West Texas Intermediate oil futures on the New York Mercantile Exchange, which settled Wednesday at $86.24 per barrel, up 56 cents, or 0.7%. Brent crude lost 38 cents per barrel, or 0.35%, to close at $108.70 a barrel.
After the morning jump in prices, market participants said the gasoline supply prospects for the region improved with news that power had been restored at the Phillips 66 238,000-barrel-a-day Linden, N.J. refinery and flood waters had receded somewhat. Also, operators of the Colonial Pipeline, which normally delivers 2.4 billion barrels a day of refined products to the Northeast from the Gulf Coast, said they expected commercial power to be restored by Friday.
Those reassuring bits of news suggested the impact from Sandy wasn't as great as had been thought only hours earlier, and prices began easing. Traders and analysts said the fall was aided by concerns about weak gasoline demand, given that the region has been all but shut down for most of the week.
"Once the panic buying abated a little bit, then the focus went to the demand side of the equation," said Phil Flynn, an analyst at the Price Futures Group.
Copyright (c) 2012 Dow Jones & Company, Inc.
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