Colonial gasoline line space flips positive

The value of gasoline line space on the Colonial Pipeline's main gasoline-bearing Line 1 pressed into positive territory this morning for the first time in nearly 15 months.

Shippers with contracted space to move fuel on Colonial that do not need it during a given time period will sell it to others on the so-called line space market. This allows them to preserve their space on the pipeline in the future.

Line space trades involve a sale of the commodity at a line segment's origin and a purchase of the same commodity at a destination point, which cancels out the original sale. The difference between the two determines the prices for line space.

Uncertainty surrounding the current state of the Colonial Pipeline following last week's ransomware attack has led to price increases along the Atlantic coast, widening inter-regional spreads. Demand appears to be strongest in the US southeast, which relies more heavily on Colonial shipments.

Demand to ship along the Colonial Pipeline's 5,500-mile length, running between Pasadena, Texas and Linden, New Jersey, has been notably muted for more than a year, with arbitrage between the Gulf and Atlantic coasts having remained mostly unattractive on paper since early last year.

For arbitrage to be profitable on paper, spreads between Pasadena and Linden must exceed the 5.98¢/USG cost of shipping product on the line.

This morning, bids for prompt line space rose to flat while offers materialized at the +0.5¢/USG level, lifting values notionally into positive territory for the first time since 18 February 2020.

Prompt cash differentials versus the Nymex RBOB basis for gasoline blendstocks in the Gulf coast were down by 0.38¢/USG in daily comparison. Overall trade activity was muted during the early hours of the day as participants await further news.

The disruption to the pipeline's system occurred on 7 May at the beginning of prompt trading for Colonial cycle 29, a five-day pricing cycle. The length of prompt trading for a Colonial cycle will generally vary between three and five business days, though index pricing for the cycle is determined during the final three days of trade.

By Paul Dahlgren