Storage limitations lift NYH CBOB over RBOB

Limited tank storage for CBOB in New York Harbor is lifting the grade to flat or above RBOB, an inverse of the typical relationship seen across other winter gasoline markets in the US.

NYH CBOB changed hands from March Nymex -2¢/USG to -1.5¢/US today, flat to RBOB. In contrast, CBOB fetched 4.75¢/USG below RBOB in Chicago and and 1.63¢/USG below RBOB on the Gulf coast Colonial pipeline today.

Since the beginning of the winter gasoline season in November, NYH CBOB has averaged 0.23¢/USG above RBOB. It is unusual for CBOB to reach parity or a premium over RBOB, as RBOB has more stringent specifications for consumption in urban areas, although the difference in quality is minimal in the winter.

The premium is unique in the New York Harbor region because many storage tanks in the area are certified to store RBOB instead of CBOB. RBOB storage is crucial in New York Harbor as it provides inventory for physical deliveries into the Nymex RBOB contracts. As a result, the products going into RBOB tanks effectively drain supplies from the CBOB pool in the winter.

The inverse spread disappears when the New York Harbor market transitions to summer grade gasoline starting in March. RBOB commands a significant premium over CBOB in the summer, as summer specifications are much tighter.

Such price inversions can be found elsewhere in the refined products markets when fundamentals of supply and demand outweigh costs of production for certain fuels.

On the US west coast, EPA diesel — the grade that conforms to national ultra-low sulphur diesel specifications — frequently trades at premiums over the more stringent CARB diesel, which conforms to higher California emission standards. This is because EPA diesel is the export grade, and demand for exports to Latin America can often propel prices to higher levels than CARB diesel, which California refiners are committed to producing.

CARB diesel demand has also been chipped away by the state's drive to increase renewable diesel consumption, while export demand has steadily grown.

Vacuum gasoil (VGO) is yet another example of a typically lower-value grade fetching unlikely premiums in the spot market. High-sulphur VGO traded at premiums over low-sulphur VGO for solid stretches of the past year. That was when high-sulphur VGO cargo supplies dried up from Europe, prompting Gulf coast refiners to pay up for high-sulphur VGO with better aniline, nitrogen, metals, carbon and other specifications suitable for hydrocracker feedstock.

By Chunzi Xu, Stephanie Crawford, and Daphne Tan