Colonial gasoline shipping demand to NYH eases

Demand to ship gasoline along Colonial Pipeline's main gasoline-bearing Line 1 from Pasadena, Texas to Linden, New Jersey, declined today, causing gasoline line space to fall back into negative territory.

On 14 October the Colonial Pipeline said it was allocated for its 59th cycle, meaning shipping demand rose to the pipeline's capacity. This was the first time in more than a year that demand equaled capacity.

At the same time demand to ship gasoline into the US Atlantic coast rose as a result of both lower regional production and lower inventories of the fuel. This also increased backwardation in the forward curve in the New York Harbor, with prompt availabilities of product drawing premiums over barrels to be received at a later date.

Since then the pipeline has remained at capacity, having announced allocation of cycles 60 and 61. But confidence in the Atlantic coast market remaining short of supply in the future has eroded, allowing gasoline line space values to drop into negative territory following its brief stint of positive values.

Shippers who are allocated space on the Colonial pipeline 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.

Line space — the price of fuel taken off Line 1 along the Atlantic coast relative to the price at origin in the Gulf — had been negative for more than five months prior to this, even as spreads between the two regions have been profitable on paper for several weeks.

The pipeline tariff into Linden from Pasadena is 5.98¢/USG, but market participants have pegged the true cost of shipping — accounting for taxes, fees and line loss — closer to 6.25¢/USG.

Today, line space trades were done at -0.25¢ and -0.4¢/USG, meaning participants paid for others to use their available space.

By Paul Dahlgren