Viewpoint: NYH gasoline shortage may linger in 2021

New York Harbor prompt gasoline shortages may persist this winter amid poor blend margins and weak domestic arbitrage economics, yet imports will fill part of the supply gap.

Shortages of naphtha, higher costs for butane and logistical issues have consistently weighed on RBOB gasoline blending margins this winter.

Naphtha, a blending component for RBOB, has been tight since this summer. Naphtha cargoes from Latin America have been drawn away from New York Harbor into Asia and Europe over the past few months, given more favorable prices in those regions.

The Colonial pipeline in June allowed shipment of segregated batches of gasoline components, including naphtha. Still, each batch must be buffered on both sides by CBOB, which has seen less than viable arbitrage economics for most of the year. The economic loss associated with a weak arbitrage, coupled with approximately 20 days shipment time from the Gulf coast to New York Harbor, have discouraged pipeline shippers.

Higher costs for butane, a main blending component for winter RBOB, has also limited supplies this winter. New York Harbor butane prices haveaveraged 45.97¢/USG below barge RBOB from 1 November to 22 December this year, a narrower discount compared to 51.98¢/USG during the same period last year. Butane prices were supported by a lack of trucking logistics earlier in the season. Terminals with rail access have tended to fair better logistically.

Higher butane prices and a lack of naphtha squeezed blending margins so much that it became unprofitable to ship other grades fitting into the RBOB blend pool — such as 87 octane conventional gasoline — from the Gulf coast to New York Harbor.

Despite the arbitrage dipping in and out of viability on paper this winter, the Colonial pipeline has been out of allocation, meaning nominated volumes are below capacity, since September. For the few cycles that were fully booked, shipment volumes ended up below capacity, and shippers had to sell excess line space on the market at negative prices. This meant that instead of taking the arbitrage loss, shippers paid others to take their allotted line space in order to maintain shipping history.

Colonial pipeline gasoline line space value settled at -0.25¢/USG on 23 December.Regional production in New York Harbor has averaged lower this winter compared to last year due to weak margins. The 3-2-1 crack spread based on Brent crude has averaged $7.45/bl so far this month, down from $8.3/bl in November. Atlantic coast crude throughput averaged 594,000 b/d from November through the third week of December, at 25pc below the same period last year, according to US Energy Information Administration (EIA) data.

An increase in European cargo loadings to New York Harbor may help alleviate the shortage for the remainder of winter should transatlantic arbitrage economics remain favorable. As much as 170,000 b/d of gasoline and blending components loaded from Europe to New York Harbor in November, the highest in more than a year, Vortexa data show. Loadings averaged 160,000 b/d so far in December.

New York Harbor gasoline stocks reached 35.65mn bl the second week of December, their highest point since early July amid growth in refining and blending production and rising imports, according to the EIA.

But credit prices for US environmental compliance have been rising over the past few months, which may have a negative impact on transatlantic flows. The Argus Renewable Volume Obligation (RVO) reached a three-year high the week of 23 December at 9.7¢/USG. RVO has averaged at 9.25¢/USG so far this month in comparison to 2.53¢/USG last year.

Prompt RBOB cash differentials in New York Harbor have been boosted by these ongoing supply issues, partially offsetting against pandemic related demand weakness.

Prompt New York Harbor barge RBOB settled at January Nymex +0.73¢/USG on 23 December, in comparison to January Nymex +0.58¢/USG a year earlier when demand was higher. The forward curve was backward by almost 0.5¢/USG from the dead prompt timeframe through the end of December.

By Stephanie Crawford