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Feature: Summer demand pushes March USAC gasoline imports to seven-month high

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Feature: Summer demand pushes March USAC gasoline imports to seven-month high

Highlights

An ongoing switch to summer-grade product has helped push US Atlantic Coast gasoline imports to a seven-month in March, according to US Customs data.

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The USAC imported 11.92 million barrels of gasoline in March, up 1.87 million barrels from February and the highest total since August 2017. That was also up 2.67 million barrels from the same month last year, the first year-on-year climb since September 2017.

The uptick was largely fueled by demand for summer gasoline, which traders generally store until federal law requires it to be used on May 1 at truck distribution terminals.

"Most [summer-grade] trading is for barge to tank to hold for the contango," a trader said. "No one has rack demand for it right now."



But that upcoming switch is so profitable that suppliers start securing summer barrels weeks in advance. The price spread between summer RBOB with 9 RVP and winter-grade with 13.5 RVP was assessed at 11.25 cents/gal Wednesday, giving exporters a big incentive to send low-RVP product across the Atlantic.

ARA SUPPLY BOOMS

The USAC's import increase came almost entirely from the Amsterdam-Rotterdam-Antwerp trading hub, which at 3.46 million barrels was up 3.13 million barrels from February and its largest export total to the USAC since June 2016. Shipments between the regions had been down significantly since July, including none sent in December and January, with supply pulled away by stronger demand in Africa and the Mediterranean.

That sudden uptick was in line with the arbitrage from the ARA to the New York Harbor, the destination for a large portion of USAC imports. Sending gasoline between the regions netted shippers an average 4.20 cents/gal in March, the most profitable month since Hurricane Harvey-supported September.

The arbitrage has drawn support from opposite inventory situations in the regions. Gasoline stocks in the ARA were 11.35 million barrels the week ended March 29, 2.16 million barrels over the five-year average, according to PJK International data. Inventories along the USAC were 57.42 million barrels the week ended March 30, about 4 million barrels below their own five-year average, US Energy Information Administration data shows.

DOMESTIC DEMAND REMAINS STRONG

USAC gasoline traders have not expressed concern about the region's low inventories, noting outside supply can quickly be sourced if necessary.

"There are a ton of exports out of the Gulf Coast that can be redirected north if the market demands it," a second trader said. "If you put all your eggs in the inventory basket maybe there?s some concern, but I don't see any panic."

USGC gasoline exports averaged 884,000 b/d in March, nearly double the amount for the same period last year, EIA data shows.

But even with export demand at an unusually high level, gasoline shipments to the USAC from the USGC have been steady. Colonial Pipeline's 1.37 million b/d Line 1 has been allocated since early February and value for space on the line has been positive since February 20.

Since RVP specifications currently do not align between the two regions, line space value is the best indication that the arbitrage is profitable and open.

--Joshua Brown, joshua.brown1@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com