Line space on Colonial Pipeline's distillate Line 2 on Wednesday fell back to the lowest point seen this year on a tighter US Gulf Coast/Atlantic Coast spread for ultra low sulfur diesel.
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Platts assessed line space on the 1.16 million b/d distillates-only line at minus 1.25 cents/gal, down 2 cents from Tuesday and the lowest value since it was assessed at the same level on May 5. The two dates are the lowest Line 2 space has been since the assessment began in February.
Wednesday's assessment also marks the first time since October 5 that values have fallen to a discount, as the spread between the Gulf and Atlantic coasts narrowed. Including Wednesday, Line 2 space has only been assessed at a negative value nine times since February.
The line runs from Houston to Greensboro, North Carolina, linking there with Colonial's 1.37 million b/d gasoline-only Line 1 to form Line 3, which terminates in Linden, New Jersey.
Line space values have dropped off as Gulf Coast cash differentials for ULSD, a high-volume product on the pipeline, skyrocketed on Tuesday morning after news broke that Colonial suspended originations and deliveries at its Cedar Bayou, Texas, storage facility due to flooding in the area. The flooding has kept Colonial from moving barrels stored in the underground caverns.
With ULSD stuck in storage at Cedar Bayou, Gulf Coast ULSD was assessed Wednesday for the 62nd cycle at NYMEX December ULSD futures minus 5.9 cents/gal. Differentials on Tuesday reached as high as minus 3 cents/gal for the 61st cycle.
The rising Gulf Coast differential narrowed the spread between the Gulf and Atlantic coast markets for ULSD. The product in New York Harbor was assessed at minus 2.5 cents/gal, bringing the regional spread on Wednesday to 3.40 cents/gal. The spread has only been narrower three times dating back to June.
"Line space is more a function of the current up/down versus New York, as well as general netbacks along Colonial Pipeline versus US Gulf Coast spot markets," one source said.
Market sources said it costs about 5 cents/gal to ship barrels up the Colonial Pipeline, so line space values dipped into the negatives in order to attempt to reopen the arbitrage.
When line space trades at a negative value, companies are paying to give away space on the pipeline. If regular shippers do not use the space that is allocated to them, then their future allocations will be decreased.