USGC diesel shippers look for alternatives
US Gulf coast diesel shipments on the Colonial pipeline are shrinking rapidly, as the arbitrage into the Atlantic coast has become so poor that Gulf coast suppliers would rather export, store, or ship it to the midcontinent.
The Colonial pipeline said late last month it had no diesel input from Houston, Texas, after volume declines in already caused lengthy delays in shipping times on the pipeline.
Around 613,000 b/d of distillates moved from the US Gulf coast to the Atlantic coast via pipeline in January, the lowest level since August 2017 when Hurricane Harvey shut production and pipelines in the Gulf coast. Apart from the two months following Harvey, January distillates shipments were at their lowest level since 2012, data from the US Energy Information Administration (EIA) show.
January was the height of the winter heating season in the northeast. Since then, pipeline distillates movements have fallen further as the Atlantic coast market looked to imports from Europe.
The mid-February winter storm cut fuel production so much that Gulf coast refiners have still not returned to pre-storm rates as of early April. While the storm reduced availability for pipeline input through March, waterborne diesel exports held up in March and rose further in early April. Regional inventories in the Gulf coast grew during the same time, as did arbitrage shipments to the midcontinent. These Colonial pipeline alternatives have all proven more attractive than shipping to the Atlantic coast in recent weeks.
Alternatives abound
Mexico imported more waterborne diesel from the US Gulf coast in March, which helped offset a sharp drop in Gulf coast exports to Brazil. Brazil instead pulled supplies from India and floating storage off West Africa.
Brazil is reducing the biodiesel blend mandate to 10pc in May and June, down from 13pc. This mandate reduction could potentially shift about 28,000 b/d of demand to diesel, which is equal to about three mid-range vessel cargoes per month that could come from the US Gulf coast, sources say.
While movement restrictions aimed to limit the spread of Covid-19 have considerably cut into Brazil's gasoline demand, the country's diesel consumption has mostly held up from steady industrial, agricultural and trucking sectors.
Exports have picked up as fob prices have come off since February highs, widening arbitrage out of the region. Gulf coast Colonial pipeline ultra-low sulphur diesel (ULSD) has remained in the low $1.70/USG range in early April, including some of the lowest levels since the arctic storm lifted prices in mid-February.
Around 940,000 b/d of diesel has loaded out of the US Gulf coast so far this month, up from around 690,000 b/d in March and approaching the 1mn b/d that loaded in April 2019, Vortexa estimates show.
High renewable volume obligation (RVO) have also added considerable incentive to export road fuels.
Domestically, the midcontinent market has proven a more profitable outlet than the Atlantic coast in recent weeks amid heighted demand from the agricultural sector during spring planting season. Both Chicago, Illinois, and Tulsa, Oklahoma, have seen diesel prices well above Gulf coast levels, attracting an increase in arbitrage input into the Magellan and Explorer pipelines originating from the Houston area.
It also appears that putting diesel into storage is more attractive for some Gulf coast suppliers than shipping on the Colonial. US Gulf coast distillates inventories rose to 52mn bl during the week ended 2 April, a six-week high, EIA data show.
The contango in Nymex diesel futures averaged around 0.22¢/USG so far this month going from May to June, narrower than an average of 2.68¢/USG during the same period in 2019.
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Pemex unbilled debts to suppliers climb
Pemex unbilled debts to suppliers climb
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Roadblocks across Colombia cut LPG supply
Roadblocks across Colombia cut LPG supply
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Idemitsu completes biofuel trial for bunkering vessels
Idemitsu completes biofuel trial for bunkering vessels
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