Arbitrage economics for shipping US Gulf coast gasoline to the US Atlantic coast narrowed this week as east coast inventories climbed and tighter Gulf coast supplies helped lift prices to a one-year high.
Off-line Colonial Pipeline RBOB prices at Linden, New Jersey, fetched a 2.03¢/USG premium to US Gulf coast Colonial prices on Thursday, down by 2.3¢/USG from the previous session to the narrowest spread since 31 March. The inter-regional spread has held below Colonial's 6.58¢/USG tariff for shipping between Pasadena, Texas, and Linden since late last week after netting an average premium of 7.08¢/USG to shipping costs the prior 73 trading days from 1 April through 19 July.
Arbitrage opportunities between the Gulf and Atlantic coasts have been pressured by growing inventories in the east coast.
Atlantic coast gasoline stocks rose to a three-week high at 55.89mn bl in the week ended 21 July and were 2.2pc below year-earlier levels, according to US Energy Information Administration (EIA) data. Atlantic coast RBOB inventories rose to nearly a four-month high at 19.1mn bl and accounted for 36pc of Atlantic coast gasoline blending components, up from 34pc a week earlier.
Regional production likely contributed to growing RBOB stocks. Atlantic coast refinery runs rose last week by 2.9 percentage points to 81.7pc, a six-week high, as the catalytic cracker at Phillips 66's Bayway refinery in New Jersey was heard to have restarted. Atlantic coast refiner and blender net production of finished motor gasoline rose to a two-month high at 3.26mn b/d, according to EIA data.
Still, gasoline shipments from the Gulf coast will continue as Colonial is allocated for cycles delivering through at least mid-August. The arbitrage for CBOB, which has a higher Reid vapor pressure than RBOB,has been the most viable this week and may be the most attractive shipping option through early August. Colonial Linden prices for CBOB held a 6.775¢/USG premium to the Gulf coast on Thursday, slightly above shipping costs.
Atlantic coast CBOB inventories fell by 2.4pc to 26.63mn bl the week ended 21 July and were 5.5pc below a year earlier, according to EIA data.
The arbitrage opportunity for sending Gulf coast gasoline to the Atlantic coast has also been pressured by tightening stocks at the Gulf coast, which helped raise Colonial RBOB prices to $2.93/USG on Thursday, the highest since 27 July 2022. Total gasoline inventories at the Gulf coast were the lowest in eight months at 79.6mn bl last week. Compared with the same week in 2022, stocks were down by 8.3pc, while they lagged prior-week levels by 2.3pc, according to EIA estimates.
Meanwhile, rising prices for Gulf coast gasoline blending components have driven up high-octane gasoline prices.
With inter-regional spreads narrowing, the value of gasoline space on Colonial's Line 1 has dropped to a four-month low at -2.25¢/USG on Thursday. Shippers who are allocated space on the Colonial must use it or risk losing allocation later, even during periods of lower demand. To prevent this potential loss of space on the line, traders will effectively sell their allocated space to others.
