CPL and the NY-Harbor NYMEX Gasoline contract aren’t immune from secular industry changes

By Simon Jacques

September 9, Colonial Pipeline’s Line 1 was halted after a spill in Alabama.

cpl1

(1) The CPL halted, the NYH-GC gasoline swap went deeper into inversion.

In Houston, the CBOB basis blew up, not lower as one would expect.

cpl2

The inversion issue is symptomatic of a much broader shift in the U.S market liquidity.

The NY-Harbor relative relevance is now reduced to time-spreads.

Culprit: Finance

In the NY-Harbor, inventory storage deals are financed because of the NYMEX EFP connectivity.

This banks financing is contingent on the ability to deliver the products on Nymex-facilities located in NY-Harbor. As a result, European traders are swamping NYH and it’s not profitable to move gasoline to New York from Houston on its main artery for regular shippers. 

The liquidity has shifted to the Gulf Coast.

Recently we saw articles opining that non-regular shippers (spot buyers) were “Getting paid to ship products to NYH” because the “line value is negative”. 

In this case regular shippers ship (sell products at one point and re-purchase at another) because they have to maintain a minimum volume average shipment history. This pattern has no lower bound and creates rigidity at these negative prices.

It is the mindset of the regular shippers to reduce their losses however the buyers are not out there to make a free lunch; with the line “negative price rigidity”, there are still zero incentives to regularly move the products on this flow.

cpl3.png

This shows that the relevance of NY harbor and the NYMEX contract aren’t immune from secular industry changes and deep cyclical troughs that materially impact the immediate-term energy markets.

commoditymerchanttradingandshippingadvisory

Navigating the commodities markets with Freight and Spreads  © 2016 

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