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

Houston (Platts)--29 Dec 2017 602 pm EST/2302 GMT


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

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

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

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

On Friday, physical USGC diesel ceded another 10 points to be assessed at NYMEX 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, terminal were assessed at NYMEX January ULSD minus 1.25 cents/gal, down 75 points from Thursday.

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

With buying interest increasing, nominations for lines leading out of the Gulf Coast, have been allocated. On Friday, Colonial said the 3rd cycle on Line 2, delivering to Linden, New Jersey, had been fully nominated in a notice to 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




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