Gas prices are on their way up as we head into spring and toward the peak driving season. Valero Energy Corp. (NYSE: VLO) announced its plan to close its refinery in Aruba, which supplies 235,000 barrels a day to refiners in the Gulf Coast. The company was losing money off the plant, particularly because oil prices have jumped so high in recent months.
The Aruba plant will only be temporarily idled, with the ability to go back online once demand picks up again.
Valero had been weighing its options for the past two years, but for now the company is forced to idle the refinery. Says CEO Bill Klesse:
“If it had not been for the efforts of the Prime Minister, the refinery would not have restarted in late 2010 and operated over the past 15 months.”
This, in addition to other U.S. refineries that are closing, has initiated a boost in gasoline futures out of market fear that supply won’t meet demand once demand picks up.
Gasoline futures for April rose to $3.36 this morning on the New York Mercantile Exchange, contributing to the 25% increase futures have seen so far this year. AAA reports that prices are 8.5% higher than this time a year ago.
In addition, Sunoco Inc. (NYSE: SUN) has declared its intention to close a Philadelphia refinery in July if it can’t find a buyer. The refinery has a capacity of 335,000.
And last month, a 350,000 barrel-per-day refinery in the U.S. Virgin Islands closed. The refinery is owned by Hovensa LLC, a joint venture of Hess Corp. (NYSE: HES) and Petroleos de Venezuela SA.
Overall, these closures have led to a 50% decline in East Coast refining capacity.
And due to sanctions on Iran over concern of the nation’s nuclear project, oil prices are still on the rise.
The average price of gasoline will likely hit $4 by April.