BP’s Whiting refinery, the largest refinery in the Midwest, made a quicker-than-expected return to action this week. BP released a statement saying that the large crude distillation tower that went offline and caused gasoline prices to spike in the Midwest has “safely restarted,” and that output would ramp up over time.
The Whiting refinery’s return to action is no doubt welcomed by crude producers and consumers alike. For about two weeks the Chicago area saw gasoline prices spike, the fastest increase since Hurricane Katrina in 2005. At a time when the national average for gasoline was around $2.63 per gallon, gasoline in Chicago was selling for more than $1 higher than that in some parts of the Midwest. Drivers in the Windy City will be pleased to hear the Whiting refinery will ease the shortage of refined products in the coming weeks.
Also, the restart of the refinery is good news for the WTI benchmark, as U.S. oil prices saw downward pressure from the refinery outage. With part of BP’s 410,000 barrel-per-day refinery offline, crude oil suddenly ran into a bottleneck in the central part of the country. It was feared that crude oil would pile up in storage tanks at Cushing, OK, pushing down prices as storage reached its limits. It is hard to imagine one refinery having such an outsized impact, but the Whiting outage threatened to worsen the glut of crude oil and keep prices low well into the fall.
There are still a lot of reasons to suspect that crude prices will remain depressed for months, but the return of the Midwest’s largest refinery breathes a bit of life into the oil markets.
Presumably, nobody is more excited than the executives at some Canadian oil firms. While WTI is finding new six-year lows seemingly by the day, the discount for West Canadian Select (WCS), a benchmark for Canadian oil, plummeted to even lower depths. WCS prices dropped to near $20 per barrel, the largest discount in more than a year and painfully low for all of Canada’s oil producers, most of whom would struggle to make any money at those prices.
BP’s refinery will obviously not be a cure-all, but it is one of the few pieces of good news to hit the oil markets in a long time.