NEW YORK, April 26 (Reuters) - Demand to ship fuel on Colonial Pipeline’s Line 2, its main distillate line, has dropped to about a six-month low as rising Gulf Coast exports have kept barrels from being sent through the pipeline to other U.S. regions, traders said.
Colonial Pipeline’s Line 2, which can carry 1 million barrels of distillate per day from Houston, Texas, to Greensboro, North Carolina, has not been allocated since cycle 15, just over a month ago, a company spokesman said.
Colonial, the largest fuel pipeline system in the United States, functions as the primary artery carrying about 3 million barrels of gasoline and other fuels daily from the Gulf Coast to various points throughout the U.S. Southeast and East Coast.
High Gulf Coast export demand has boosted buying in the region and strengthened prices for distillates like heating oil and ultra-low sulfur diesel, market sources told Reuters. That makes it less economical to send barrels on Colonial to the East Coast or other areas in the United States.
Colonial declined to comment on why the line has been unallocated.
Gulf Coast middle distillate exports are at over 1.2 million barrels per day so far in April, a five-month high, said Matt Smith, director of commodity research at ClipperData. A majority of exports are heading to Central and South America, he said.
East Coast supply could remain tight for as long as Line 2 stays unallocated. Inventories of distillates hit their lowest levels since 2014 in the most recent week, according to U.S. Energy Information Administration data.
East Coast distillate prices have been strong due in part to both high export demand and less supply from the Gulf Coast.
Gulf Coast distillate fuel oil inventories have fallen for four consecutive weeks, according to EIA data. Gulf diesel ULSD-DIFF-USG hit its strongest levels in seven months in early April and has since weakened slightly to 4 cents per gallon below the futures benchmark on the New York Mercantile Exchange.
Gulf Coast heating oil HO-DIFF-USG traded on Wednesday at 17 cents per gallon below the futures contract, near levels not seen since January, a signal of strong demand.
A Colonial “cycle” is a five-day period when a sequence of all in-season products is pumped. The company pumps the same sequence of products every five days.
In 2017, Line 2 was not allocated between cycle 38 and cycle 58, a Colonial spokesman said, the equivalent of about three months. (Reporting by Stephanie Kelly Editing by Tom Brown)