Colonial Pipeline may be up for sale with a price north of $10 Billion

Energy markets are trying to rally again Wednesday after refined products hit their lowest levels since the first day of October in Tuesday’s session, while WTI settled at a 7 week low.

Reports that Israel was considering a cease fire in Lebanon coincided with another wave of selling Tuesday that wiped out early gains, but there are also contradicting reports that they will wait until after US elections to resume diplomatic negotiations.

Positive economic news from the US also seems to be contributing to the early buying spree with the government’s Q3 GDP report estimating healthy growth of 2.8% for the quarter and the ADP private payroll report estimated that 233,000 jobs were added in October.

The premium to lease space on Colonial’s main gasoline line (Line 1) jumped to a 4 month high north of 9 cents/gallon Tuesday as the annual drop in Gulf Coast gasoline basis values increases demand for space to take advantage of the arb to NYH. Last year line 1 values peaked in mid-November at 17 cents/gallon, while 2 years ago they peaked around November 20th at 22 cents/gallon. It’s worth noting that the pipeline operator doesn’t get those premiums, which are traded over the counter by physical traders, and the premiums going to shippers who have built up their history and are leasing out their space on a cycle by cycle basis. Coincidentally, reports this week suggest Colonial pipeline may be up for sale with a price tag north of $10 billion for the country’s biggest refined product conduit after several of the lines current owners expressed interest in liquidating their positions.

On the other end of the spectrum, values for ULSD in Tampa bay have plummeted to their lowest level in nearly 3 years after the race to re-supply Florida following this fall’s pair of hurricanes appears to have now outpaced demand. See chart below.

Speaking of chasing arbs: renewable fuels markets continue to be roiled by production that needs to chase the highest government credit values in order to survive with a product that costs $2-$3 more per gallon to make. A Tuesday article notes that Canadian biofuel producers have been feeling the pain as US producers have been chasing British Columbia’s LCFS credit, and P66 noted in its Q3 earnings call that it was halting SAF production at its Rodeo facility this quarter to try and BTC credits before they expire at year end while preparing to take full advantage of the more stringent CFPC in 2025.

The API reported inventory builds across the board last week with gasoline stocks up just under 1.5 million barrels, while distillates increased by 1.7 million barrels and crude oil stocks were up roughly ½ million barrels. Clearly those builds have been ignored in the early trading with all 3 Nymex contracts trading higher. The DOE’s weekly report is due out at its normal time this morning, with refinery runs once again a key number to watch as domestic facilities have been cranking up output just in time for less people to want it.

This morning the DOE (EIA) published a note on Canadian crude imports to the US, which hit a record high this year following the Transmountain pipeline expansion. That note also highlights how despite concerns that the expansion would be the end of deep discounts for Western Canadian crudes that are critical to several US mid-continent refiners profitability, increased Canadian output has helped those spreads persist, which may lead to yet another winter of steep basis discounts in Group 3 and Chicago markets that struggle to find a home for their supply when cheap crude incents their refineries to run full out during the demand doldrums.