A decision may be coming soon regarding Colonial Pipeline’s proposal to
eliminate shipping high sulfur distillates.

“Regarding the latest on the high sulfur grades, we received responses on
the RFP (request for proposal) earlier this month and are currently reviewing
them,” Colonial spokeswoman Malesia Dunn said. “We expect to follow up with
shippers by the end of the month.”

Colonial in October said it planned to halt shipments of high sulfur
products by January 2018.

However, after market players objected, the pipeline in December agreed
to accept proposals from companies interested in purchasing the high sulfur
interface, known as transmix, between batches.

Sources said the RFP deadline was in early March, and are awaiting the
decision.

“I heard they would delay the transition to 500 ppm jet until 2019 [at
the] earliest, and just look for transmix buyers on each cycle in 2018,” a
trader active in the Gulf Coast jet fuel market said.

Another trader agreed: “Not a mind reader, but I assume they will go
through with the spec change, but maybe delay it a bit.”

Paper traders are wondering what Colonial’s decision will eventually mean
for the swaps market.

News regarding paper products related to Colonial Pipeline’s decision to
discontinue high sulfur 54 grade jet shipments in January 2018 has remained
muted this year.

Trading volumes were greatly affected in October after Colonial issued
its statement, with end-of-the-day settlement spiking to 2.55 million lots
from 295,000 lots overnight.

However, it has since slowed.

Open interest for 2018 has not recorded any significant movement since
the announcement. Open interest appears to be stable at about 430,000 open
lots, declining to 355,000 lots throughout 2018, according to CME open
interest report.

“I’m sure CME/ICE will come up with a differential for 55 vs. 54 grade
and re-adjust all the trades and the market is waiting to see what’s going to
happen before anyone makes a move,” a jet swaps trader said. “I mean, the
market needs something to benchmark against.”

The forward curve structure also has not encountered any major movement
across the board for 2018, although in recent weeks some liquidity was
recorded on CME for an annual amount to the NYMEX ULSD futures contract minus
9.25 cents/gal.

–Daron Jones, daron.jones@spglobal.com

–Tommy Tran, tommy.tran@spglobal.com

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