NEW YORK (Reuters) - U.S. East Coast refiners are sending gasoline barrels to western Pennsylvania instead of the New York Harbor market, compounding an unusual tightness in an area that helps set prices for the nation.
The diversion comes as gasoline imports from Europe to the U.S. and Gulf Coast shipments abroad are weakening deliveries to New York Harbor, three market sources said. Meanwhile, prices in the Chicago area have soared to a five-year high seasonally amid heavy refinery maintenance and a pipeline outage.
The dwindling flows to New York suggest a further decline in inventories in the region through November, setting up a potential bullish run for the fuel. New York is supplied largely by U.S. Gulf Coast refineries via the Colonial Pipeline, along with local refineries and transatlantic imports.
New York Harbor is the delivery point for NYMEX benchmark gasoline futures and is the only exchange-traded gasoline market in the world.
“It’s bone dry (in the New York Harbor),” said Robert Campbell, head of oil products markets at consultancy Energy Aspects.
Demand for European barrels to Asia and the Middle East has been strong in recent weeks, Campbell said, adding that Mexico’s draw on Gulf Coast barrels is running about 50,000 barrels per day higher than last year heading into the seasonally strong months of November and December.
“There’s massive refinery maintenance in the Midwest and that is pulling a lot of barrels away from Colonial system and the harbor into western PADD 1 and eastern PADD 2,” Campbell said.
Gasoline inventories in the Mid-Atlantic region, which includes New York Harbor, fell to 25.8 million barrels, the lowest seasonally since 2014, according to the latest weekly data from the U.S. Energy Information Administration.
East Coast gasoline imports hit the lowest in nearly eight months and the second lowest figure in five years, the EIA data showed.
The tightness in the U.S. gasoline and distillates markets puts refiners on their best footing in three years heading into the winter months, Marathon Petroleum CEO Gary Heminger said in an earnings call last week.
Gasoline and distillate days of supply are at the low end of the five-year average, Heminger noted. [EIA/S]
Gasoline prices in the Chicago area have risen as inventories fell to their lowest in two years. Supplies dwindled as post-hurricane shortages were compounded by Midwest refinery maintenance and reduced volumes on the Explorer pipeline from the Gulf Coast. [PRO/U]
U.S. mid-continent total motor gasoline inventories fell for the fifth week in a row to 46.6 million barrels in the week ending Oct. 20, according to the EIA.
The Midwest price surge has made Philadelphia barrels more attractive and increased flows along the Laurel Pipeline, which connects the Philadelphia and Pittsburgh markets, the sources said.
“There has been a lot more volume on Laurel recently when Chicago gasoline shot up and everyone started replacing Pittsburgh barrels with harbor pricing,” a source said.
A spokesman for Buckeye Partners, which owns the 350-mile Laurel Pipeline, did not respond to requests for comment.
RBOB gasoline differentials in the New York Harbor traded on Monday about 6.50 cents per gallon above benchmark futures for delivery in December. Chicago CBOB differentials were about 14 cents a gallon above futures for December.
Reporting by Devika Krishna Kumar and Jarrett Renshaw in New York; Editing by Frances Kerry