TORONTO - Gasoline differentials in markets east of the Rockies are expected to hold unseasonal strong levels this week, after last week's surprise drawdown in inventories, as disciplined refiners hold the line on production, industry sources said on Monday.
The outages have siphoned off the some of the high stock levels, and nudged up differentials to the point of making the Europe-to-Atlantic route more attractive. But inventories are still higher than average, at 209.2 million barrels or 15.4 million barrels higher than last year.
Along the Gulf Coast's refinery row, several large gasoline making fluid catalytic cracking units are down for work, including a cat at Exxon Mobil's large Baytown, Texas, refinery and one at ConocoPhillip's 239,000 barrel per day refinery in Lake Charles, Louisiana.
East Coast refinery outages such as the planned overhaul of Irving Oil's 300,000 bpd export refinery in Saint John, Newfoundland which exports a good chunk of output to the Northeast and reduced runs at other area refineries have cut into supply. This supply reduction has nudged up differentials in the region, opening the shipping arb marginally from Europe for the fourth quarter, European gasoline traders said,
Last week, three spot cargoes of Eurograde were seen leaving Europe for the United States, arriving at the end of October and through November.
In the Midwest, Chicago gasoline values are also seen high due to lack of blending components,
It's the tight octane season in Chicago and that causes price spikes, said one Midwest trader.
Distillates are seen weaker as export opportunities from the U.S. Gulf to Europe are thin for diesel and non-existent for heating oil.
In the New York Harbor, traders said heating oil differentials were likely to come off during the week as more moderate temperatures return to Northeastern states, keeping demand somewhat dull in the face of a supply overhang in the world's largest market for the fuel.
According to private forecaster DTN Meteorlogix's five-day weather outlook, Northeast temperatures are expected to average 3-6 Fahrenheit below normal Monday but return to near normal Tuesday, then above normal Wednesday to Friday. The 6-10 day forecast said temperatures are expected to average near to above normal.
Differentials should come off some during the week, plenty of supply and returning to seasonable temperatures, said one distillates trader in the New York Harbor.
Cash heating oil was offered flat at 2.50 cents under the virtually unchanged benchmark November futures on NYMEX on Monday, traders said.
Government data puts U.S. stocks of distillates, which include heating oil and diesel, at near 26-year highs at 170.7 million barrels. In the New England portion of the PADD 1 region, heating oil stockpiles stand at about 12.4 million barrels, more than double year ago levels, the data shows.
Traders said Harbor price differentials may also be weighed down by a Colonial Pipeline nomination freeze from Monday for cycle 60 for its Linden, New Jersey multi-product delivery line L2, according to a notice by the largest U.S. pipeline shipper of refined fuels from the Gulf Coast to the New York Harbor.
Too much is going into the pipe, means there is plenty coming up to NYH, one distillates trader said. Diffs (differentials) will come off.
Asked if the storage terminals in Bayonne, New Jersey, were full, the trader said: From what we are hearing, yes. Others, said they didn't believe the storage terminals were full but noted that there wasn't enough time on the line to bring in all the barrels people want before the next cycle comes in from the Gulf.
Arbitrage opportunities for moving barrels from the Gulf Coast to the Harbor improved somewhat after being closed recently with a rise in cash values in refinery row, traders said. But traders also noted that the arb works better from the Gulf to some Midwestern markets.