Explosion at Philadelphia refinery: Update 4

Adds Laurel context, updates price information.

New York Harbor gasoline futures settled higher today but physical prices were slower to rise as the market waited to see how a fire at the east coast's largest refinery would change supplies.

An early-morning explosion and fire damaging an alkylation unit at Philadelphia Energy Solutions' (PES) 330,000 b/d refinery in Philadelphia, Pennsylvania, continued to burn late this morning, hours after firefighters brought the blaze under control. Conventional gasoline blendstock, or CBOB, could be particularly affected in the central Atlantic and western Pennsylvania markets PES supplied.

July Nymex RBOB futures increased by 6.98¢/USG to settle at $1.8561/USG, the largest one-day increase since early March.

Physical prices for several New York Harbor grades rose by roughly 2¢/USG. New York Harbor 7.8 RVP CBOB for Buckeye or barge lifting narrowed its discount to July Nymex by 2¢/USG to 6¢/USG. Prices for US Gulf coast gasoline, a major supplier to the Atlantic coast, were muted in initial response to the fire. Chicago gasoline, which can travel through Ohio to the Pittsburgh market, traded lower despite anticipated higher demand from Pennsylvania.

The Philadelphia refinery supplies the east coast's central Atlantic market around the New York Harbor as well as western Pennsylvania through the Laurel pipeline system. Bids on that pipeline, through which PES sent 20pc of its 2016 production, vanished today. But a fire earlier this month on the refinery's fluid catalytic cracking (FCC) unit and a Laurel outage near Pittsburgh kept the market uncertain about the newest outage's impact.

A butane vat exploded and burned at around 4am ET, triggering a shelter-in-place advisory for the surrounding community and causing minor injuries to four workers, according to firefighters and the refiner.

PES said that three separate explosions hit the alkylation unit, which uses acid and catalyst to combine butane and olefins into a high-octane gasoline blendstock called alkylate. The broader refining complex continued to operate at a reduced rate, the company said. Union leadership declined to comment.

A 10 June fire on a fluid catalytic cracking unit, which converts vacuum gas oil to gasoline blendstocks and other products, had already disrupted the refinery's fuel production. PES has said the two incidents were not connected.

Market haze

PES operates the single largest refinery on the east coast but the region has other major suppliers. PBF Energy operates 360,000 b/d of refining capacity in New Jersey and Delaware and Phillips 66 operates the 250,000 b/d Bayway refinery in Linden, New Jersey. Delta Air Lines subsidiary Monroe Energy operates a 185,000 b/d refinery in Trainer, Pennsylvania, not far from PES. Monroe assisted in the initial fire response.

The central Atlantic region where those refineries operate reported 32.4mn bl of gasoline blendstocks in storage last week, 1pc lower than the five-year average for the month after a 880,000 bl draw. US Gulf coast refiners supply the region through the Colonial Pipeline system, but prices in Texas and Louisiana did not move significantly following the fire.

The incident could tighten the European gasoline market, where premiums to crude have been steadily narrowing in recent weeks, and draw more fuel supply from the US Gulf coast. The US Atlantic coast is the primary destination for excess European gasoline. RBOB's premium to Ice Brent crude futures widened by $2.18/bl to $12.76/bl, its largest move since March. New York Harbor drew approximately 297,000 b/d of gasoline and blendstocks from overseas suppliers — mostly Europe — so far in June, down from approximately 382,000 b/d in May. Transatlantic arbitrage movers were expected to book spot fixtures for prompt loading on a journey that takes 10 days to reach New York from Europe's ARA hub. Cargoes already at sea for other destinations could also be rerouted.

The refinery processes a mostly light sweet crude diet of west African and North Atlantic crude. Imports averaged below half of its 330,000 b/d capacity in the first quarter, at roughly 150,000 b/d. PES averaged 229,500 b/d of crude imports in the first quarter of 2018, and 236,000 b/d for the full year. Two Suezmaxes carrying west African crude are currently on route to the refinery.

PES exited bankruptcy last year under new majority ownership. The company blamed its financial condition on federal fuel blending laws. Bankruptcy documents showed the company had also made an ill-timed bet on the future of railed Bakken crude deliveries to the east coast. PES served as a backdrop to refiner efforts and a rally with US Senator Ted Cruz (R-Texas) last year campaigning against biofuel blending standards.

The refiner, a major Philadelphia employer, may now add new political pressure to its financial headwinds. Philadelphia mayor Jim Kenney (D) praised the response but said he would convene refinery and fire officials to discuss the refinery and the surrounding community. The US Chemical Safety Board, an independent investigative agency, was sending a team to the refinery today. And the accident's involvement of an alkylation unit using hydrofluoric acid may pull the site into broader scrutiny of such units already underway in California.