Crude futures settled higher Tuesday, led by a surge in gasoline futures following reports the Mississippi River floods are curtailing refinery operations and fuel shipments.
Light, sweet crude for June delivery rose $1.33, or 1.3%, to $103.88 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded $1.78 higher at $117.68 a barrel.
Refineries are bracing for potential shutdowns and disruptions to fuel shipments ahead of the floodwaters now moving toward the Louisiana refining corridor, which has investors fearful about gasoline supplies.
Motiva Enterprise LLC's 237,000-barrel-a-day Norco, La., refinery is preparing for supply disruptions due to the opening of flood gates, according to a spokesman for Royal Dutch Shell PLC (RDSA, RDSB, RDSA.LN, RDSB.LN), which is part of a joint venture operating the plant. Separately, Enterprise Products Partners (EPD), which transports oil and fuel products, said at least two of its barges would be stuck in Kentucky for up to a week due to flooding.
"The biggest issue is going to be on the logistics and transportation," said Andy Lipow, president of Lipow Oil Associates, an energy consultancy. "It will take several weeks to sort itself out."
Front-month June reformulated gasoline blendstock, or RBOB, settled 10.13 cents, or 3.1%, higher at $3.3797 a gallon, more than making up the losses suffered in last week's commodity plunge. The premium of gasoline futures over crude rose to more than $38, the highest level on record.
Gasoline has been an important driver of crude prices in recent weeks, as investors try to gauge whether high prices at the pump will crimp demand for oil. Average U.S. retail gasoline prices could soon cross the $4 a gallon level, weighing on the budgets of consumers and businesses and potentially hurting the economic recovery.
The Mississippi floods could add to rising prices at the pump if refineries are forced to shut down. But several refiners, including Valero Energy Corp. (VLO) said rising water levels won't disrupt operations.
Still, U.S. gasoline stockpiles have fallen for 11 straight weeks, and analysts surveyed by Dow Jones Newswires expect further declines when data are released by the Energy Department Wednesday.
Crude inventories are expected to rise by 1.2 million barrels, according to the survey, while gasoline stocks are seen falling by 700,000 barrels. Stockpiles of distillates, which include heating oil and diesel, are expected to hold steady compared to a week earlier.