Chicago blendstocks weakened with US Gulf Coast market players seeking to place RBOB Thursday on the Houston-origin Explorer Pipeline for sale in the Midwest, market sources said.
The differential for pipeline RBOB FOB Chicago through June 15 dropped 10 cents to the NYMEX July RBOB futures contract plus 35 cents/gal, with some market talk placing the blendstock 2 cents/gal higher. It has topped 30 cents over front-month RBOB for three consecutive trading days after missing that mark for the previous 162.
A reduction in crude from Canada, issues on the Magellan pipeline from Houston through Dallas to Tulsa, and a refinery production problem at the Marathon Petroleum plant in southern Illinois have contributed to tightness in Chicago gasoline.
On Thursday, Gulf Coast market players were heard to be trying to place Houston barrels on the Explorer line with mixed results, market sources said.
"It's very hard to get gasoline to Chicago," a US refined products trader said. "Explorer is not reliable and it is always full."
Some space on Explorer has been used for barrels to compensate for a shortfall in refined products in Dallas. A key products line in the southernmost section of the Magellan pipeline system remained closed Thursday.
The desire to get gasoline to Chicago has prompted some market players to offer premiums for Explorer line space, market sources said.
"The story is no one is willing to sell Explorer space," a US refined products broker said. "So the bloom has come off that rose."
Space on the line had been selling as high 6 cents/gal and likely was around 2.5 cents/gal Thursday, he said. The trade is executed as a swap of a Colonial barrel for an Explorer barrel, with a spot premium paid access to the northbound line.
Explorer joins with Colonial in the Houston suburbs. About 15 days are needed for a Houston barrel to reach Chicago, a second US refined products trader said.
Values point to an open arbitrage for those with access to the line. Chicago RBOB at 9 RVP was 36.25 cents/gal above Pasadena, Texas-loaded RBOB Thursday, even with the Texas product at a lower RVP of 7.8.
