UPDATE:Idle Capacity Comes To Rescue In Sunoco Refinery Fire

A fire is burning out on Monday at a Sunoco Inc. (SUN) oil refinery on the Pennsylvania-Delaware border, but any immediate shortfall to gasoline and diesel production is expected to be mitigated by idle processing capacity.

An explosion late Sunday sparked the fire at the ethylene complex at Sunoco's 178,000-barrel-a-day refinery in Marcus Hook, Pa. Ethylene is a chemical byproduct of the process that converts crude oil into transportation fuels.

It's unclear whether the fire at the complex spread to any of the fuel-making units.

"There has been some production impact to some units," Sunoco spokesman Thomas Golembeski said.

There were no fatalities or injuries as a result of the explosion, which was heard for miles around, according to local media reports. No evacuations were called for.

Like many other refiners around the nation, Philadelphia-based Sunoco has been running its plants well below maximum capacity, at rates that are lower than normal ahead of the peak summer driving season in the U.S. Sunoco, whose operations are concentrated on the East Coast, ran at 74% utilization in the first quarter.

While this slack, brought on by fuel demand weakened by the economic downturn, has hurt refiners' bottom lines, it's an asset during unexpected outages. Sunoco said it's ramping up operations at nearby Philadelphia, which can run 335,000 barrels a day, and Westville, N.J., which has a nameplate capacity of 145,000 barrels a day, to cover any losses to production at Marcus Hook.

Struggling amid the decline in refining profits, Sunoco has said it wants to sell its chemicals business.

Refineries across the nation haven't run at consistently high percentage of their operable capacity since late 2006 and early 2007. Before demand for fuels took a hit, companies were walloped by skyrocketing prices of crude oil, their biggest cost. Back then, even minor operational hiccups sent energy prices rallying.

Crude oil and products futures were higher on Monday, but many traders attributed the jump to unrest in Nigeria, which produces a high-quality crude that yields a lot of gasoline per barrel. The fire at Marcus Hook was also supportive, although an East Coast trader said no price impact was visible in the New York Harbor physical market.

However, a prolonged outage at the Sunoco refinery could boost gasoline prices in the Northeast, said Chi Chow, an analyst with Tristone Capital Co. in Denver.

Gasoline prices gradually have been rising nationwide and averaged $2.311 on Monday, according to AAA. The East Coast receives some of its gasoline from Europe, but those imports have been declining because of the poor margins on the fuel, Chow said.

Meanwhile, refiners in other parts of the country have returned units to service or are close to doing so. Royal Dutch Shell PLC's (RDSA) refinery in Deer Park, Texas, has restarted and is nearing normal rates after a power outage last week. The hydrocracker, which produces diesel and jet fuel, at the Exxon Mobil (XOM) Baytown, Texas, refinery was restarted Monday, a company spokeswoman said.

Sunoco's Golembeski couldn't provide more details on the extent of the damage at Marcus Hook because investigators can't get close to the ignition point.

"Once the fire is out, we will conduct a thorough investigation," he said. State and federal authorities plan to investigate as well.

-By Susan Daker, Dow Jones Newswires; [phone]; [e-mail]