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Line 2 space value reaches 20-month high on USGC ULSD, heating oil weakness

The value of line space on Colonial Pipeline's distillate Line 2 reacheda fresh 20-month high Thursday and remained there Friday, as buying intereststrengthened as spreads between regional heating oil and ULSD markets at thetwo ends of the system widened.

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Line 2 space for the 1st cycle rose 50 points/gal Thursday to 3.25cents/gal, the highest level since March 30, 2016, when it reached 4cents/gal. During early trading Friday, bids were heard as high as 3cents/gal, countering offers at 3.50 cents/gal. The price was assessedunchanged Friday.

One source said line space was becoming more expensive as US Gulf Coastdistillate values fall, even as Atlantic Coast prices strengthen.

The US Gulf Coast ULSD differential weakened 50 points/gal Thursday tothe NYMEX January ULSD futures contract minus 9.35 cents/gal while USGC highsulfur heating oil fell 1.50 cents/gal compared with Wednesday to NYMEXJanuary ULSD minus 21.50 cents/gal.

On Friday, physical USGC diesel ceded another 10 points to be assessed atNYMEX January ULSD minus 9.45 cents/gal while HSHO bounced back some,rebounding 1 cent to be assessed at minus 20.50 cents/gal.

Atlantic Coast differentials were stronger this week, but on Friday,values dropped as offline barrels at Colonial's Linden, New Jersey, terminalwere assessed at NYMEX January ULSD minus 1.25 cents/gal, down 75 points fromThursday.

The wider spread has been driven by colder weather in the US increasingdemand for heating oil and distillate products. "It's all about capturing thearbitrage," a Gulf Coast trader said.

With buying interest increasing, nominations for lines leading out of theGulf Coast, have been allocated. On Friday, Colonial said the 3rd cycle onLine 2, delivering to Linden, New Jersey, had been fully nominated in a noticeto shippers. It was the third consecutive cycle to be fully nominated.

--Jordan Berry, jordan.berry@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com