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Chicago suppliers stockpile fuel as Harvey shuts pipelines

[August 31, 2017] By Chris Kenning and Suzannah Gonzales

CHICAGO, Aug 30 (Reuters) - Chicago fuel distributor Olson Service Company snapped up gasoline this week to pre-empt a potential supply crunch in the third-most populous U.S. city as fuel supplies dry up from Texas because of Tropical Storm Harvey.

Harvey has triggered widespread flooding across southeastern Texas and neighboring Louisiana, closing close to a quarter of U.S. refining capacity.

On Tuesday, a major fuel artery from the Gulf Coast to Chicago shut down because there was no fuel to pump through it. The line can carry 660,000 barrels per day, and about 350,000 bpd of that typically go to the Chicago area.

There are refineries in Chicago and other pipelines that pump in gasoline, diesel and jet fuel. But with the nation's entire fuel supply system strained and prices at the pump rising, Olson is taking no chances, said Mario Orlandi, operations manager at the company.

The firm, which supplies diesel and gasoline to construction companies, has bought more fuel in anticipation of possible shortages and more price rises, he said.

Retail gas prices in the Chicago area are already about 7.5 percent above national averages.

His company typically keeps fuel tanks 60 percent full, but has increased stored fuel to 80 or 90 percent of capacity, Orlandi said. Olson Service tanks store 150,000 gallons, he added.

At least one other Chicago-area distributor planned to stockpile extra fuel as the shutdown on Wednesday morning of the Explorer Pipeline, which ends in the city's suburbs, raised the threat of shortages.

The AAA, representing motor clubs throughout the United States and Canada, said Chicago's gasoline stocks would fall because of the pipeline closure, but downplayed the possibility of shortages because inventory levels were high.

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"We're going to see surplus stocks go down," said AAA spokeswoman Jeanette Casselano. The Midwest has 52.7 million barrels of gasoline in surplus, 4.4 million more than this time last year, she said.

"The pipeline status is not going to have a huge impact at this time," she added. "If refineries are offline for months and months, it's a different story and we will need to reassess."

It is unclear how long it will take to repair and restart refineries. Refiners have yet to assess the damage they sustained.

On Wednesday, average retail regular gas prices in Metro Chicago were $2.58 per gallon, up from $2.56 a week ago, according to the AAA. Nationally, gas averaged $2.40 on Wednesday, up from $2.34 a week ago.

Further pressure on retail prices could be coming, as Chicago wholesale CBOB gasoline prices < CBOB-DIFF-MC> are at the highest level since at least mid-June 2016.

They last traded at about 18 cents a gallon above benchmark futures, traders said. Diesel prices <ULSD-DIFF-MC> firmed by about half a cent, they said.

William Fleischli, executive vice-president of the Illinois Petroleum Marketers Association, which represents 400 fuel distributors, said much depended on how long the shutdown lasts.

"It's not a significant problem at the present time, but it could turn into one." (Reporting by Chris Kenning and Susannah Gonzales; Editing by Simon Webb and Peter Cooney)

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