US gasoline, ULSD markets look to Jones Act vessels amid supply glut

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

A 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 gasoline stocks in New England slipped 123,000 barrels week on week to 4.7 million barrels for the week ended January 10, while Central Atlantic 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 the USAC would be welcoming of Gulf Coast barrels.

Imports of gasoline into the US Atlantic Coast fell 75,000 b/d week on week to 316,000 b/d, the lowest level in a year. Imports were last lower the week ending January 11, 2019, at 297,000 b/d.

ULSD stocks in PADD 1A drew 393,000 for the week to 6.98 million barrels, EIA data showed, significantly above the five-year average for the region of 5.76 million barrels. 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.

Gulf Coast stocks swell

Interest in Jones Act vessels comes as Gulf Coast gasoline and ULSD stocks build. Gulf Coast gasoline stocks have risen to their highest-ever level, building 3.4 million barrels week on week to 94.3 million barrels, and ULSD stocks hit a two-year high at 39.63 million barrels. ULSD stocks were last higher the week ended January 5, 2018, at 39.75 million barrels, EIA data showed.

Builds in regional stocks have come 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 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. On broker noted the "export arbitrage was fully shut."

ULSD pipeline flows

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 on Thursday, marking the first time the line has been allocated since 2016, the company said in an email.

Line 3 moves refined products coming off 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 on Friday, much lower than prices at the same time in the past few years. Platts assessed the market at prompt-futures minus 7.20 cents/gal in 2019, 8.25 cents/gal in 2018, and 6.45 cents/gal in 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 on 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 on Friday. CBOB and RBOB coming off the pipeline were both assessed at February futures plus 0.5 cent/gal.