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Pipeline Work Choking Off Fuel Supplies to Midwest

Oil Pipeline
Oil Pipeline

Regional refinery work and pipeline repairs are choking off fuel supplies to the U.S. Midwest, triggering a spike in gasoline prices, traders and fuel dealers said Thursday.

The latest disruption came from the Explorer Pipeline, which traders said was cutting fuel throughput rates by up to 8 percent to the Midwest for several months due to maintenance.

The slowdown comes after a string of refinery problems in the Gulf Coast and Midwest over the summer forced the Magellan products pipeline, the biggest fuel pipeline in the region, to reduce deliveries to some markets.

U.S. regulators granted North Dakota, one of the state's hardest hit by the fuel crunch, a waiver to import Canadian gasoline that does not meet summer tailpipe emission limits to help alleviate the shortage.

"We've been battling issues here since late June, early July," said Mike Rud, president North Dakota Petroleum Marketers, adding gasoline prices in the state were up 30 cents a gallon over the last week. "Since the mid-part of June, supply has been very spotty at the terminals in the eastern part of the state."

Gasoline differentials in the Chicago region, which reflect wholesale prices, jumped five cents in early Thursday activity due to refinery and pipeline maintenance, traders said.

Additional support came from an expected heavy slate of autumn refinery work that could further slash regional production.

Supplies to states in the Northcentral region were also expected to fall due to planned maintenance at Marathon and Flint Hills refineries in Minneapolis and at Murphy Oil's Wisconsin plant.

BP had already cut runs by 170,000 barrels per day (bpd) at its Whiting, Indiana, refinery due to an April fire and full rates were not expected until next year.

An unusually large number of refinery outages this year has drained U.S. product inventories and helped push the average retail pump prices in the world's top energy consumer to a record $3.227 a gallon in May.