Flint Hills Resources' sprawling Rosemount oil refinery, one of the Midwest's largest, has reduced production in a rare move spurred by the huge coronavirus-induced decline in gasoline demand.
That drop in demand plus other factors affecting the oil industry have led to a price dive at the pump. While average Twin Cities prices are around $1.70, the lowest prices in Minnesota have hovered below $1 per gallon for about two weeks, the longest period of sub-$1 gas that one fuel market veteran said he had seen since the mid-1990s.
Flint Hills is Minnesota's largest gasoline supplier, and spokesman Jake Reint said demand is down 50% from a year ago.
"We are managing an unprecedented drop for gasoline," he said. "It is very challenging."
Jet-fuel demand is down even more – 75% – and Flint Hills supplies about 90% of the stuff used at Minneapolis-St. Paul International Airport.
The refinery reduced production in the past two weeks, a move Reint couldn't recall happening before because of falling fuel consumption. He declined to say by how much but said there have been no layoffs or furloughs.
Other U.S. oil refiners have also throttled back production, not only as demand has declined but as storage space for both crude oil and refined products is filling up.
Marathon Petroleum, which owns the state's other refinery in St. Paul Park, declined to comment on whether production has been cut in Minnesota.
But the Ohio-based company, one of the nation's largest oil refiners, last week said it would temporarily close its Gallup, N.M., refinery on April 15, the first U.S. refinery idled due to the transportation fuel shock.
Flint Hills, an arm of Wichita, Kan.-based Koch Industries, has reconfigured production as much as possible to churn out more diesel fuel at Rosemount, though there are limitations due to the chemistry of oil refining.
"There is still a healthy demand for diesel," Reint said.
While governors across the nation have issued stay-at-home orders to slow the spread of COVID-19, leading to the plummeting gasoline and jet-fuel demand, diesel-powered trucks and trains have kept moving vital goods.
An oil price war between Russia and Saudi Arabia has created another downward price shock.
The two nations and other major oil-producing countries – all now ailing from rock-bottom prices – finalized Sunday an unprecedented production cut of nearly 10 million barrels, or a tenth of global supply, in hopes of boosting the crashing prices.
Average gasoline prices have dropped in the Twin Cities from a year-high last April of $2.79 to $2.03 by March 18 and to $1.76 late last week (and $1.63 statewide), according to GasBuddy, a price-tracking website.
The average low for the past decade in both Minnesota and the nation was a short period in February 2016 when WTI dropped to $27 per barrel. Gas prices in Minnesota briefly dipped as low as $1.43 a gallon then, according to GasBuddy.
Still, prices have sunk below $1 per gallon at several gas stations, particularly in the Red Wing area.
Mike Wilson, who has been in the fuel business in Red Wing for 35 years, said he hasn't seen prices this low for a sustained period since the mid-1990s. Wilson Oil's markets range from gasoline to fuel for the passenger boats that ply the Mississippi River from Louisiana to Minnesota whose business is on hold because of the coronavirus.
Wilson sold his company a few years ago to Ramsey-based Dehn Oil, but has stayed on.
Wilson Oil runs a gas station in Red Wing under the VP Racing Fuel brand, and it has posted some of Minnesota's lowest prices in recent weeks. On Friday, it was at 89 cents per gallon, tied with eight other stations for the state's low, according to GasBuddy.
Those stations included four Kwik Trips, one Speedway and one Marathon. Six of them were in Red Wing, and two more within 20 minutes of the river town. VP Racing has often put out the lowest price first, and the competition has been furious.
"Things are tight right now and people are looking for a bargain," Wilson said. Still, he noted that gasoline prices have dropped so low that while they're good for consumers, they're not good for the fuel industry as a whole — from refiners on down.
"You can't have it go this low," he said.
Another potential problem for the state's gasoline industry is the government-mandated seasonal switch from "winter blend" to "summer blend" fuel.
Normally, winter blend would now be on its way out of the system, but it's not because gasoline demand has fallen so sharply. "Everybody is choking on this winter product," Wilson said.
The U.S. Environmental Protection Agency on March 27 issued a waiver for the winter-summer switch, extending the changeover date from May 1 to May 20. But the EPA's waiver conflicts with state laws on the fuel changeover, according the Minnesota Department of Commerce.
The department said that it's working with "stakeholders" – including the industry – to address the issue.
"It is not at a crisis point at the moment, but it could become a problem in a couple of weeks," said Flint Hills' Reint.
Flint Hills is now producing summer gasoline. "But we have nowhere to put it in some cases."
The Associated Press contributed to this report.
Mike Hughlett • 612-673-7003
