Feature: Gasoline, ULSD markets look to Jones Act vessels amid supply glut

New York — Weaker US Gulf Coast gasoline and ultra low sulfur diesel markets have left suppliers looking at unconventional avenues in search for more lucrative outlets of product, including exploring the idea of sending cargoes sailing on US-flagged vessels.

Inquiries for Jones Act vessels to lift gasoline and ULSD from the Gulf Coast to different parts of the Atlantic Coast were heard Friday, sources said.

"I've heard brokers sharing cargoes for Jones Act vessels to lift ULSD to the Atlantic Coast," a USGC distillates trader said.

The same sentiment was echoed by a gasoline trader.

The gasoline trader said the movement happens when Gulf Coast prices come off, adding that PADD 1A (New England) would be the likely destination of cargoes.

"PADD 1A pays around 1 cent/gal more than PADD 1B (Central Atlantic)," the gasoline trader said.

US Energy Information Administration data showed total gasoline stocks in New England slipped 123,000 barrels for the week ended January 10, to 4.7 million barrels. In the Central Atlanti, stocks saw a 36,000-barrel build to 34.9 million barrels.

With fewer barrels of gasoline arriving on US shores from Europe, it is expected that the USAC would be welcoming of Gulf Coast barrels.

Imports of gasoline into the US Atlantic Coast fell 75,000 b/d or the week ended January 10 to 316,000 b/d, their lowest level in about a year. They were last lower on January 11, 2019 when they registered 297,000 b/d.

ULSD stocks in PADD 1A drew 393,000 for the week that ended January 10 to 6.98 million barrels, the most recent EIA data showed. This is significantly above the five-year average for the region which numbered 5.76 million barrels, EIA data showed. Stocks in PADD 1B totaled 21.36 million barrels, building 2.04 million barrels during the same period but well below the five-year average of 21.36 million barrels, the data showed.

Interest in Jones Act vessels comes as Gulf Coast gasoline and ULSD stocks build. Gulf Coast gasoline stocks rose to their highest-ever level in the week ended January 10, building 3.4 million barrels week on week to 94.3 million barrels. This registers the highest inventory level since January 1990, when the EIA began tracking gasoline stocks.

ULSD stocks build to a two-year high in the region, totaling 39.63 million barrels for the week that ended January 10, according to the data. Stocks were last seen higher for the week ended January 5, 2018 at 39.75 million barrels, EIA data showed.

Builds in regional stocks have been seen since the week ended December 20, 2019, precipitating the implementation of IMO 2020 shipping fuel regulations. However, stronger demand for ULSD expected at the start of 2020 has not yet been realized.

"The huge demand everyone was expecting from IMO 2020 has not materialized yet," the trader said.

Inventory builds on the Gulf Coast have been aided by high freight rates, which have diminished demand to send products out of the Gulf Coast.

"Heard the export arbitrage was fully shut," one broker there said.

With limited viable options to send product, ULSD flows from the Gulf Coast to the Atlantic Coast have been very strong, with allocations seen on the Colonial Pipeline distillates-only Line 2 for the first seven cycles of 2020. Colonial Pipeline also issued an allocation for eighth cycle on its Line 3 Thursday, marking the first time the line has been allocated since 2016, the company said in an email Thursday. Line 3 moves refined products coming off of Lines 1 and 2 from Greensboro, North Carolina, to Linden, New Jersey. Due to the allocations, there is no chance for surplus product to be sent from the Gulf to New York Harbor via pipeline.

S&P Global Platts assessed ULSD on the Gulf Coast at February futures minus 9.25 cents/gal Friday. This is much lower than past years, when Platts assessed the market at prompt-futures minus 7.20 cents/gal on the same in 2019, at prompt-month futures minus 8.25 cents/gal in 2018, and at prompt-month futures minus 6.45 cents/gal on January 17, 2017.

In contrast, ULSD off the Colonial Pipeline was assessed at February futures minus 1.15 cents/gal Friday, 8.25 cents above ULSD being injected onto the pipeline.

Gulf Coast gasoline has also been trending lower. Conventional gasoline in the Gulf Coast was assessed at the NYMEX March RBOB futures contract minus 3.25 cents/gal Friday. Conventional grade gasoline was assessed at futures minus 1.95 cents/gal for the same time in 2019 and futures plus 1.25 cents/gal for the same time in 2018. CBOB and RBOB were assessed at March futures minus 8.05 cents/gal and minus 7.50 cents/gal, respectively.

Conventional gasoline barrels coming off the Colonial Pipeline in Linden, New Jersey, were assessed at the NYMEX February RBOB futures contract plus 4 cents/gal Friday. CBOB and RBOB coming off the pipeline were both assessed at February futures plus 0.5 cent/gal.