For the pulse of the fuels markets, it’s always best to look at the price of spot pipeline space, and a steady-to-weakening market for pipeline capacity in the US Gulf Coast and Atlantic Coast markets is reflecting how motivated traders are to ship gasoline and distillates along the nation’s busiest products pipeline.
Space on the Colonial Pipeline’s 1.16 million b/d Line 2—which ships diesel, heating oil and jet fuel in parallel to the gasoline-specific Line 1 from Pasadena, Texas, to the hookup with Line 3 in Greensboro, North Carolina—was trading at a discount Friday and Monday. Sources said the space was offered at minus 25 points/gal Monday after trading at 25 points/gal and 50 points/gal Friday.
Traders buy line space by selling product in Pasadena, Texas to a counterparty that has line space, then buying the product back at the Colonial terminal from which they want to unload. The difference in price is the value at which the line space traded; that’s the figure that is now at a discount to parity. The party that buys the line space also pays the tariff for moving the product on line.
The regional spread between the Gulf and Atlantic coasts for any product has been hovering right at or below a level that would be considered an open arbitrage–as it has for jet fuel and heating oil lately–can get pushed into open arb territory by a decline in the price of line space.
The jet fuel spread between the Gulf and Atlantic coasts was 4.50 and 4.75 cents/gal on Thursday and Friday, respectively. The arbitrage is considered open when the spread reaches 4.50 or 5 cents/gal, depending on whom you ask, but several market sources said it was still closed on Friday, albeit just barely.
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“So if you can buy a piece of line space from someone there, the arbitrage works,” one distillates trader said.
The arbitrage for gasoline along the same route is appearing less attractive, as evidenced in a declining price for gasoline space.
Line 1 space for gasoline was heard traded at plus 2.75 cents/gal Monday after trading as low as minus 1 cent/gal on Friday, meaning that at the end of last week, traders were willing to give away money to anyone wanting space. The value of spot space fell from as high as a bid-offer range of plus 7.7 cents/gal to 9 cents/gal as recently as last Tuesday, traders said.
Space on Line 3–which goes further north, to the terminus at Linden, NJ–was heard talked at about minus 25 points/gal on Monday, consistent with its value for the last three weeks. Northeast US refineries are near that terminus.
“I’m pretty sure the gasoline arbitrage from the Gulf Coast is closing,” a New York line space trader said Monday. “And isn’t New York Harbor getting hit with a lot of cargoes?”
It is. US Energy Information Administration data released last week showed gasoline imports on the Atlantic Coast at 861,000 b/d in the week ending May 9, representing about 20 cargoes and reaching a 46-week high. Energy Analytics Group oil analyst Thomas Finlon predicted over the weekend that imports will rise to 930,000 b/d for the week ending May 16 in data revealed Wednesday, representing 22 cargoes. If that happens, it would place Atlantic Coast imports at their highest level since the week ending August 31, 2012, and further pressure the market for spot pipeline space.
A narrower spread between Gulf Coast gasoline and Atlantic Coast gasoline has taken some of the luster off the gasoline arb in which the cheaper Texas and Louisiana product quenches the Eastern seaboard’s thirst.
On April 28, 15 trading days ago, conventional gasoline at 87 octane and 9 RVP was 15 cents higher for barge delivery in the Atlantic Coast ($2.9392/gal) than the chemically identical product in the Gulf Coast ($2.7892/gal). On Friday, that spread had narrowed to 8.3 cents ($2.8854/gal vs. $2.8024/gal).
“Gulf Coast has moved up a lot in the past week or so. And New York Harbor hasn’t seemed to follow, at least as much,” said a trader active in both markets.
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