December 18, 2014
Tallgrass Pony Express Pipeline Extends Open Season for Expansion Project

Tallgrass Pony Express Pipeline LLC said on Thursday that it is extending its local open season and its joint open season with Hiland Crude to accommodate interested shippers.

The extension will end on Jan. 23, 2015.

"Extending our open seasons beyond the holidays gives interested shippers more time to work through the process," said Pony Express General Manager Doug Johnson.

"It also allows shippers who may have committed to a recently cancelled competing pipeline project an opportunity to commit to the Pony Express expansion. We will move forward with our pipeline expansion to accommodate all qualified, committed shippers," it said.

OPIS notes that Enterprise canceled its Bakken-Cushing crude pipeline project last week due to a lack of shipping commitments. The recent sharp oil price drop has put oil companies on the defensive, adopting a more conservative market approach.

Beginning in mid-2015, Pony Express expects to provide shippers who commit to the full expansion a pro rata share of interim capacity of approximately 100,000 b/d. The expansion plan could increase Pony Express pipeline delivery capacity up to 400,000 b/d, the company had said previously.

The full expansion capacity is currently expected to be operational in the second half of 2016.

On Oct. 8, Tallgrass said its Pony Express pipeline began first operation, delivering crude from Wyoming to Cushing.

Pony Express owns an approximately 690-mile-long crude oil pipeline commencing in Guernsey, Wyo., and terminating in Cushing, Okla., with delivery points at Ponca City Refinery and Deeprock in Cushing.

OPIS notes higher crude flow to Cushing could contribute to higher inventory at the Midcon crude storage hub and potential downward pressure to WTI crude prices. Also, a sharper crude price contango in the U.S. market should help encourage oil companies to store crude in tanks and capitalize on the higher forward prices.

December 16, 2014
N.Y. Harbor Spot Prices Continue Collapse; Mogas Tests $1.50, Diesel $2

Refined products prices tore lower early Tuesday under the weight of continued heavy selling on the NYMEX futures complex. Spot prices throughout the U.S. Northeast tumbled roughly a nickel early on, with gasoline now beginning to test $1.50/gal and diesel $2/gal.

RBOB and CBOB blendstocks prices were down 4.75cts at last glance, with prices coming in around $1.5250/gal, marking fresh, five-and-a-half-year lows. Underlying futures weakness tugged numbers lower this morning, while cash trade remained mostly thin. Prompt differentials were actually slightly stronger after a CBOB deal was inked at "flat" to the January RBOB futures contract for Buckeye Pipeline loading next week. The forward pricing curve is beginning to flatten out, with "anys" talked just 25-50pts cheaper than prompt material.

Despite continued weakness -- New York Harbor prices have crumbled more than 50cts/gal since the Thanksgiving Day holiday -- the region continues to boast the most expensive spot fuel in the nation. While New York Harbor mogas prices hold above $1.50/gal, every other region is testing $1.30/gal.

Distillates spot prices saw comparable losses this morning, with NYMEX futures declines yanking New York Harbor prices nearly a nickel lower. Ultra-low-sulfur diesel fuel in the U.S. Northeast is beginning to test the $2/gal mark, with numbers ringing in at $2.01/gal. Keep in mind, however, that it is the only region in the country where prices are still above $2/gal. Comparatively, Gulf Coast ULSD is in the $1.60s and Midwest ULSD is in the $1.70s.

New York Harbor ULSD cash trade was quiet early on. Prompt barge material was last talked 6cts/gal above the January ULSD futures contract, even to last night's assessments.  

Ultra-low-sulfur heating oil prices have dropped below $2/gal, coming in at $1.98/gal at last glance, down more than a nickel with futures losses. Prompt barrels were pegged 3-3.5cts over the Merc, though no deals had been confirmed.

Jet fuel discounts were holding at 2cts below the futures screen, good for an implied price of $1.9287/gal.

December 4, 2014
OPIS Exclusive: Pipeline Space Charges to Impact Unbranded Supply Soon

Just in time for the holidays, marketers who rely on unbranded gasoline supply deals tied to Gulf Coast spot numbers are being notified of some major changes in terms for those contracts in 2015. At least two major oil companies have told customers that they can no longer ignore the high fees that they must pay to secure additional line space on the Colonial and Plantation Pipelines. In at least one instance, a major will build the new charges into its pricing methodology.

OPIS confirmed that at the November SIGMA meeting, Motiva execs warned customers that the refiner would soon look to recoup the fees it faced when securing line space to move gasoline north from Gulf Coast origination points to East Coast terminals. A few weeks ago, the basic outline for new contracts was revealed.

Motiva will continue to offer unbranded gasoline to jobbers and retailers in the region, but in mid-January, the company will add a fee that reflects line space charges that impact the deals.

In other words, marketers might buy at a Gulf Coast "mean" plus a differential that reflects transportation and mark-up, and then they must pay a charge that reflects line space fees. Several customers say that Motiva will get that fee based on daily OPIS or Argus assessments for Colonial Line 1 space, and pass along 90% of that charge.

These days, that would amount to a substantial additional premium. A huge secondary market has developed in Colonial Pipeline space, particularly for Line
1 which is constantly allocated and moves gasoline to Greensboro, N.C., where it can then make the trip up to the New York Harbor terminus. The actual freight that Colonial charges is generally less than a nickel, but with a huge span between Gulf Coast and New York prices, buyers have paid large premiums for available space on the line. Yesterday, for example, New York gasoline numbers were 26-27.75cts/gal above Gulf Coast quotes, and deals for line space on the secondary market were confirmed at 19cts/gal.

If Motiva's new unbranded contracts were currently in place, the calculus would yield an additional charge of 17.1cts/gal for line space, reflecting 90% of the most recent line space reference. When implemented, the prices will change each business day.

Motiva's move is controversial and reflects the first confirmed instance where a major refiner is attempting to recoup charges that it must pay for soaring line space. Several jobbers thought a 90% threshold was excessive, since the major has legacy space and doesn't always have to purchase incremental line space on the secondary market.

It's not clear whether the charges will see further negotiations. But OPIS has confirmed that ExxonMobil has already concluded that it's best to withdraw from some unbranded sales, rather than continue to buy additional space and pass charges along.

OPIS confirmed at least two instances in November where ExxonMobil notified customers of unbranded supply contract cancellations. The cancellations, which become effective in 90 days, were for supply on the Plantation Pipeline, which has joined the Colonial line in seeing secondary line space charges recently. It is assumed that ExxonMobil will similarly look to cancel unbranded deals on Colonial terminals. One deal canceled was for delivered barrels while another one was sourced to the point of origin.

ExxonMobil executives told customers that it needed to devote all of its legacy line space to its branded class of trade.

Unbranded marketers are worried about other refiners cancelling contracts or imposing new onerous terms, but aren't surprised by the moves so far. Colonial Pipeline officials have acknowledged the problem, but as a common carrier the line has to occasionally give new shippers an opportunity to get line space via a lottery process.

Some of those new shippers apparently "move barrels in name only," according to critics of the process. With space often commanding premiums of 10-20cts/gal over actual freight charges, the attainment of shipper status has been akin to "winning the lottery," noted one southeastern marketer. The victims have been refiners who have had to purchase space back from the new shippers. A single 25,000-bbl piece of line space on one cycle fetched a value of nearly $200,000.

While OPIS has only confirmed the new terms for gasoline, line space charges for distillate have also surfaced in recent weeks, with New York numbers commanding prices well in excess of typical Colonial Pipeline freight charges.

Meanwhile, trading companies believe that line space premiums will continue through 2015 for the most part. There is even a "gray market" where companies trade line space on a quarterly and annual basis with recent premiums of 4- 8cts/gal.

December 3, 2014
Market Sees Sub-$2/gal Retail Gasoline; Possibility of More Such Numbers

Only 33 days after U.S. average prices for gasoline slumped below $3/gal, marketers and a great deal of media are on the lookout for street prices of less than $2/gal.

What's more, a look through current prices in the extensive OPIS wholesale database suggests that $1.99/gal may indeed be possible, but not necessarily profitable, provided merchants are willing to sell fuel at or near cost.

Essentially, three elements are necessary for a local retailer to price unleaded regular gas at less than $2 gallon. First, the retailer needs to have access to a wholesale price in the $1.50s or low $1.60s. Second, the state and federal taxes need to be under 40cts/gal, and third, the occurrence is generally limited to highly competitive retail MSA's (metropolitan statistical areas).

Oklahoma City meets all three of these criteria and this afternoon saw at least one retailer in that metropolitan area drop to $1.999/gal. OPIS data suggests that wholesale gasoline could be procured this morning as low as $1.6205/gal at Oklahoma City racks, and with 35.40cts/gal in taxes, a sub-$2/gal cost was possible, albeit with a minuscule profit on cash sales.

Other markets with rack prices for E10 or RFG10 at less than $1.65/gal documented by OPIS this afternoon included Alabama (Birmingham and Mobile); Arizona (Phoenix and Tucson); Colorado (Denver); Iowa (Council Bluffs and Iowa City); Kansas (Kansas City); Louisiana (Baton Rouge and New Orleans); Mississippi (Collins, Pascagoula and Vicksburg); New Mexico (Albuquerque); North Carolina (Charlotte); South Carolina (Belton and Spartanburg); Tennessee (Memphis and Nashville); Texas (Austin, Beaumont, Corpus Christi, Dallas, Hearne and San Antonio); and Virginia (Richmond).

The aggressive downstream prices underscore just how much pessimism is ingrained in year-end gasoline values. This afternoon saw spot gasoline trade barely above $1.56/gal at the Gulf Coast, representing a per-barrel value of just $65.52/bbl.

That put the price of bulk gasoline nearly $2/bbl below WTI crude, or more than $5/bbl under Light Louisiana Sweet (LLS) crude prices.

December 2, 2014
Credit Suisse: WTI Expected to Briefly Hit $50/bbl in 1Q15 before Recovering

A continued build-up of crude inventories and inertia from U.S. shale producers to keep output running will send average WTI prices to the low $60s/bbl and even briefly in the $50s in the first quarter next year, Credit Suisse said.

While WTI trading at $75/bbl should in theory reduce capital expenditures among U.S. producers, in practice a host of factors will likely delay companies from cutting actual production, the investment bank told clients in a conference call on Tuesday.

Credit Suisse said inventories will grow further and depress the front-end of crude futures curves in Q1 of 2015, when WTI prices should average $62/bbl, down from its previous forecast of $77/bbl.

However, curtailed production activities and positive seasonal factors should begin to lift oil prices beginning in Q2 2015, with WTI recovering to an average of $75/bbl in Q4, the bank is forecasting.

Credit Suisse expects WTI to average $70/bbl in 2015 and reach equilibrium of $75/bbl in each of the four years from 2016 to 2019.

Onshore U.S. producers will likely take the biggest hit and cut production to reduce excess supply, Credit Suisse believes.

Last Thursday, the 12-country strong OPEC decided to maintain its production ceiling at 29 million b/d, essentially taking a hit from lower prices now in order to crowd out supplies from higher-cost U.S. shale production in the long run.

Register No