Everyone knows by now that when a thunderstorm passes through Chicago, it can cause airport delays across the country. Air traffic is all about the flow. Disrupt the flow at one major hub and everyone feels it.
KANSAS CITY, Mo. - Consumers are beginning to pay more at the pump because flooding at a southeast Kansas refinery has reduced fuel supplies and sent wholesale prices soaring, industry experts said.
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Jon Callen, president of the Kansas Independent Oil and Gas Association, predicted the states most affected by the Coffeyville flooding would be Kansas, Missouri, Arkansas, Oklahoma, Nebraska, Iowa, Minnesota, north Texas and parts of the Dakotas.
"Effectively, the market was balanced before Coffeyville had to shut down. There's now a big hole in the entire market centered in Coffeyville, so the gasoline that Coffeyville was providing the region now is going to want to be made up from other refineries that already have been balanced and had people wanting to buy their gasoline," Callen said.
I would like to ask a question about a recent observation that does not seem to make sense.
There is no final demand for crude oil. The only demand for crude is from refiners to transform into products.
Yet over recent months I seem to have observed that when a refinery closing is announced the price of crude oil rallies. Moreover, when a refinery reopens crude prices fall.
This does not make sense to me but I keep seeing this pattern repeated.
any thoughts?
I'm sure you've thought of this, but I have to ask anyway. Have you controlled for other factors influencing the price of crude oil? And how many observations are we talking about?
It makes sense that the retail price of gasoline would rise significantly in a geographic region when a refinery shuts down. An individual refinery represents a large part of the supply of gasoline for a given area.
But that same refinery is a very small buyer in the world market for oil. If there is a planned shutdown that is known by market participants in advance, it should have very little impact on the crude oil market, I would think.
If it was an unplanned shutdown, then there might be some storage cost issues. Not sure how significant those would be.
Do you have data on refinery closing/opening or know where I could find it?
It is just something I've observed in the market that did not make sense. I have not investigated it at all and am sure it is not widespread. Just wondered if you had noticed it.