US gasoline prices soared during the second quarter of 2007, as refinery outages sparked supply fears heading into peak driving season.
Well, those fears sure went away in a hurry. The August RBOB crack spread (the difference between RBOB and crude futures on the New York Mercantile Exchange) has tumbled from $26.70/barrel on July 10 to $14.02/barrel Tuesday.
Crude distillation units at major refineries such as BP's Whiting, Indiana and ExxonMobil's Beaumont, Texas plants have restarted, and a coker at Beaumont is set to restart as well. What does this mean for the market? Greater crude demand, and higher gasoline production.
As US gasoline production increases, prices no longer have to remain high enough to attract enough European imports to meet summer driving demand.
The result -- crack spreads come tumbling down. Speculators had plowed into the spreads as supply/demand tightened, and as often happens, all headed for the doors at once.
It's likely, also, that the selloff will overshoot, and spreads will widen once again. What goes down, must go up?
Listen to a podcast on the outlook for gasoline prices for the rest of the summer.
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