Colonial said in a shippers’ notice Thursday that the 37th cycle on its gasoline-only Line 1 will not be allocated, the first time that has occurred since the line’s 42nd cycle in 2011.

Nominations fell below the line’s 1.37 million b/d capacity, though they “will be monitored closely to ensure the nominations do not rise above our capacity prior to shipping,” Colonial said in the notice.

Sources pointed to a closed arbitrage for shipping gasoline from the line’s origin point in Pasadena, Texas, and its final destination in Linden, New Jersey.

“The arbitrage to the New York Harbor looks closed,” a trader said. “Netbacks along the pipe are awful, no one wants to ship the incremental barrel, it appears.”

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The on-paper arbitrage for moving CBOB from the Gulf Coast to Linden has averaged negative 2 cents/gal so far this year, meaning shippers lose money on the voyage, according to S&P Global Platts data.

Line 1 runs from Pasadena to Greensboro, North Carolina, where it meets the 1.16 million b/d distillate-carrying Line 2. From there, the 855,000 b/d multi-product Line 3 runs to Linden. Wholesale prices for gasoline have been bleak for Gulf Coast shippers. Regular unleaded gasoline in Baton Rouge, Louisiana, has averaged 6.05 cents/gal premium to the same grade in Greensboro so far this year, according to Telvent/DTN data. During the same period last year it averaged a 2.81 cents/gal discount.

In addition to overall lower-than-expected gasoline demand this year, gasoline inventories along the Atlantic Coast have been higher than their historical average. Stocks were at 67.61 million barrels the week ending June 16, 10% above the five-year average, according to US Energy Information Administration data. That surplus has narrowed from 16% in mid-May.

But as the Atlantic Coast has worked through its gasoline surplus, the glut on the Gulf Coast has only grown. Gasoline inventories there were at 82.79 million barrels last week, 12.4% above the five-year average. That surplus has widened from 6% in mid-May.

GULF COAST EXPORT STRENGTH

The poor arbitrage economics between the two regions was exacerbated in the last week because of strength in the Gulf Coast. A fire last week at Pemex’s 330,000 b/d Salina Cruz refinery and concerns about tropical storms hitting Louisiana and Texas drove differentials to a multi-month high. Gulf Coast conventional grade, the main price proxy for export barrels, was assessed June 19 at NYMEX July RBOB minus 2.50, then its highest assessment since January 31. The benchmark was assessed Thursday at futures minus 4.30 cents/gal.

Mexico takes roughly half of all US gasoline exports, though shipments have fallen this year as Pemex improved output for its six refineries. But sources said last week that Mexico was looking to buy three or more gasoline cargoes from the Gulf Coast after the Salina Cruz fire.

On Thursday, Colonial’s announcement seemed to have an immediate impact on Gulf Coast differentials, as CBOB traded as low as NYMEX July RBOB minus 12 cents/gal before rebounding to futures minus 10.75 cents/gal later in the day. The grade was assessed at futures minus 11.50 cents/gal, down 50 points from Wednesday.

Several Gulf Coast sources even expressed concerned that Colonial cycles not being allocated could become a long-term trend, especially if the arbitrage does not improve.

–Joshua Brown, joshua.brown1@spglobal.com

–Seth Clare, seth.clare@spglobal.com

–Edited by Derek Sands, derek.sands@spglobal.com

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