The Los Angeles CARBOB differential rolled into a new year of trading on
a high note Friday, moving about 15 cents higher as pipeline logistics loosen,
cargoes arrive ready to load, and a refinery restarts from a power outage.

The differential had ping-ponged all week as traders weighed high
inventory against renewed export demand.

S&P Global Platts assessed December-delivery barrels of the
California-specific gasoline grade at NYMEX January RBOB minus 11 cents/gal
Thursday, exactly where it was Tuesday after dropping the day before to minus
17 cents/gal and the day after to minus 15 cents/gal.

The differential was heard done for January barrels at NYMEX February
RBOB plus 1 and then plus 3 cents/gal Friday, where it was assessed for what
would be about a 15-cent gain when accounting for the NYMEX basis month
contango roll.

San Francisco CARBOB has seen similar gyrations, and has been assessed at
a 2-cent premium to Los Angeles. Market sources said Shell was restarting its
156,400 b/d Martinez plant near San Francisco after a power outage Thursday
night.

One trader said the boost is not as stark as it looks for January
barrels, and was baked into the trade for weeks. The late December barrels do
not carry a typical storage option, making them less desirable in the current
market glut.

“The West Coast is a disconnected market. Pipeline barrels get stranded
toward the end of the month,” he said. “There is also a lot of summer grade
likely going into tank. Big Canadian and Los Angeles turnarounds in Q1, plus
Mexican demand is strong. So fundamentally, it makes sense.”

Two of at least four MR-sized vessels sent from Mexico have arrived in
Los Angeles ready to load, according to cFlow, Platts trade-flow software.
Two more 300,000 barrel-capacity ships were expected to arrive in San
Francisco: the Vukovar on Friday, and the Torm Arawa on Christmas.

“It makes sense,” a shipping source said of Mexico demand. “The South
America market has firmed quite a bit.”

Mexico regulators said Andeavor, the former Tesoro, started in October to
ship gasoline to northwestern Mexico, where it won access to Pemex storage and
pipelines this year.

The ships were likely loading gasoline, due to the recent price declines
attributed to refiners selling off high inventories. Los Angeles CARBOB on
Monday tested resistance at its lowest level since November 21, 2016, when it
was also minus 17 cents/gal. The previous low was minus 26 cents/gal on
February 23, 2016. The differential typically trades at a premium to the
NYMEX, with a 2017 average of plus 10.44 cents/gal and a high of plus 29.75
cents/gal on November 3.

US Energy Information Administration data released early Wednesday
showed West Coast gasoline stocks increased 260,000 barrels week on week to 31
million barrels for the week ended December 15, which was also 9.3% above last
year’s level. It was last this high on February 10 at 31.13 million barrels.

“When everything is running on the USWC this time of year, they are long
gasoline so its inventory has reached 31 million barrels, prices have tanked
and opened up the opportunity for Mexico to buy from the USWC,” said Andy
Lipow, president of Lipow Oil Associates.

California Energy Commission data released Thursday showed refinery
stocks of CARBOB in the state at 6.23 million barrels, up 0.8% week on week
but 12.7% higher than year-earlier levels. Non-California gasoline stocks,
typically exported to neighboring states and other countries, dropped 1% to
1.4 million barrels, which was 44.3% higher than last year. Stocks of blending
components like alkylate and benzene were 27.2% higher year over year at 6.45
million barrels.

Total gasoline and blendstock inventory came off its highest level
of the year in the CEC data, and remained near five-year highs for the period.

–Matthew Kohlman, matthew.kohlman@spglobal.com
–Silvia Struthers, silvia.struthers@spglobal.com
–Edited by Derek Sands, derek.sands@spglobal.com

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