The value for space on the Colonial Pipeline’s main gasoline line rose to 4 cents per gallon on Monday, the highest in nearly two years, according to data from S&P Global Platts. In the somewhat obscure line space market, regular shippers on the pipeline, which moves fuel from the Gulf Coast to the East Coast, have the option to sublet their alloted capacity for a premium when demand heats up.
Line space has traded almost entirely negative during the pandemic until last month — meaning that it was cheaper for shippers to give away their valuable slots on the pipeline system rather than risk losing them.
The crowded pipeline underscores the difficult task the Biden Administration has of tackling surging gasoline prices that vary drastically from from region to region. The White House is considering tapping nation’s strategic oil reserve or even restricting crude exports to lower fuel prices. But it’s uncertain that either of those would have a material effect on costs in cities like New York that depend on supplies from either the Gulf Coast or overseas.
Gasoline inventories in the East Coast are near the lowest in almost seven years as demand in the populous North East rises and European imports into the region have slumped. Wholesale gasoline in New York Harbor is trading at its strongest premium to Nymex futures in four years, while the same commodity in the Gulf Coast has weakened, according to data compiled by Bloomberg. That’s enough of an incentive for traders to pay for line space to take advantage of the arbitrage to New York.
Adding to the supply tightness is that refining capacity on the East Coast has dwindled over the years, making the region more dependent on the Colonial or imports from Europe.
The four-week average for U.S. gasoline demand has climbed to the highest in more than two months, according to the Energy Information Administration. The East Coast typically accounts for more than a third of overall U.S. gasoline demand. At the same time, the four week average of gasoline imports into the region are near their lowest since March.