Colonial Pipeline issues rare Line 3 allocation on strong demand

New York — Colonial Pipeline, the main refined products artery between the US Gulf Coast and New York Harbor, issued an allocation notice to shippers on Thursday for its Line 3, the first such notice since 2016.

The arbitrage to ship USGC products up to the Atlantic Coast has been profitable for gasoline, diesel and jet fuel to start the new year. The viability to ship all three major products has increased demand past the line's capacity.

"Nominations to ship on Line 3 are exceeding capacity, and demand has been at or very close to capacity," Colonial spokeswoman Kesley Tweed said.

The 885,000 b/d Line 3 carries gasoline, diesel, jet fuel and other products to New Jersey from Greensboro, North Carolina, where it connects with the gasoline-only Line 1 and distillates-only Line 2. The 504,000 b/d Line 4 also carries products from Greensboro to terminals in Virginia and Maryland.

The value of space on Line 2 was assessed at plus 3.85 cents/gal, its highest assessment since reaching plus 3.90 cents/gal on January 3, 2019. The line space market for Line 3 was assessed flat, unchanged for several years on lack of a true spot market.

"Line 3 space is still worthless," one market source said.

DISTILLATE PRICES SEE MIXED REACTION

For ULSD, market sources indicated the allocation would have a bearish impact on the Atlantic Coast market.

"If winter does not show up, the allocation sounds bearish," one Atlantic Coast trader said.

Platts assessed ULSD off the Colonial Pipeline at NYMEX February ULSD futures minus 1.25 cents/gal Thursday, down 10 points from Wednesday. Buckeye Pipeline and barge ULSD markets both fell 90 points to February futures minus 2 cents/gal.

Buckeye ULSD was last assessed lower at futures minus 2 cents/gal on April 18, 2017, while barge ULSD was assessed lower on March 2, 2018, at futures minus 2.10 cents/gal.

USAC jet fuel differentials approached 12-week highs Thursday, with Buckeye barrels assessed at February futures plus 0.50 cent/gal, up 0.25 cents on the day. The benchmark was last assessed higher on October 28 at futures plus 0.75 cent/gal.

USAC jet fuel stocks were down 5% at 9.8 million barrels in the week ended January 10, according US Energy Information Administration data. USAC jet production fell to 106,000 b/d, a four-week low, and imports fell 60% to 29,000 b/d.