September 13, 2016 / 7:52 PM / 2 years ago

Colonial Line 1 outage set to ease U.S. East Coast gasoline glut

NEW YORK, Sept 13 (Reuters) - Colonial Pipeline Co’s days-long shutdown of the main line that moves gasoline to the Atlantic Coast from the U.S. Gulf Coast has had the unintended effect of starting to alleviate the glut of domestic gasoline supply, traders said.

Colonial shut down Line 1 after a leak in Alabama on Friday, cutting off supplies and likely causing drawdowns in stockpiles. A full restart of Line 1 is expected to be completed by this weekend.

Gasoline futures, and cash prices, particularly in the New York Harbor, rallied.

The East Coast has been weighed down by bloated gasoline inventories, which are still 10 percent above the five-year average at about 64.9 million barrels, according to U.S. Energy Department data.

On Tuesday, a Colonial spokesman said that it had allocated space for gasoline on its distillates line until it could resume normal service on Line 1. That will affect the timing of distillate deliveries as well, Colonial said.

“The longer it’s down, the more bullish it is for gasoline,” said Andrew Echlin, oil products analyst at Energy Aspects in New York. “You add that to all the refinery shutdowns and the limited supply, and East coast refiners could see a bump in margins as well.”

U.S. gasoline margins 1RBc1-CLc1 jumped to a near one-month high of $13.68 on Tuesday. U.S. gasoline futures also rose, gaining as much as 1.9 percent to a session high of $1.4128 per gallon.

Colonial’s Line 1, with a capacity of 1.2 million barrels per day, runs to Greensboro, North Carolina, from Houston. Line 2 carries distillates primarily, while Lines 3 and 4 are multiproduct. Both Line 1 and 2 have crossover capability, though it is not a common occurrence, a Colonial spokesman told Reuters.

A source at a U.S. refiner said the supply disruption will cause a sizeable dent in the glut on the East Coast, but may not help clear the oversupply unless Colonial is down longer than a week.

U.S. gasoline calendar spreads also jumped on the Colonial news, strengthening the front of the curve. The spread between U.S. gasoline futures for delivery in November to December jumped to a record high on Tuesday, RBX6-Z6 widening to as much as $0.0268.

The New York Harbor gasoline market tightened significantly on the Colonial news, traders said. If waterborne imports pick up over the next couple of weeks, however, that could keep a lid on New York Harbor premiums, they said. (Reporting by Devika Krishna Kumar in New York; editing by Grant McCool)

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