Chicago gasoline skids south of futures in expected December correction

Benchmark pipeline CBOB at Chicago found a double-digit discount to gasoline futures Tuesday for the first time since June 22 on a selloff that market players said took Upper Midwest gasoline toward more typical differentials for mid-December.

CBOB on the West Shore pipeline from the city into eastern Wisconsin fell 5.25 cents/gal to the NYMEX January RBOB futures contract minus 10.25 cents/gal with bids heard at 15 cents/gal under futures.
The day-over-day drop in the differential was the largest since CBOB fell the same amount October 2.

"I believe that the market is finally getting to where it belongs," a US light ends source said. "I think that the values we have seen have been the ones out of line. Historically December CBOB has been double digits negative to the Merc."

Additional barrels from the BP refinery at Whiting, Indiana, have put pressure on Chicago gasoline, market sources have said.

BP said last week its 413,500 b/d Whiting, Indiana, refinery was back to normal operations after six weeks of planned work on a coker and crude unit. Whiting is the largest refinery in the Midwest and sixth largest in the US.

On November 2, CBOB was assessed 10.5 cents/gal over futures, meaning it has fallen at a rate of 79 points per trading day since then.

In mid-December 2017, Chicago differentials venture into positive territory as crude diluent for Canada occupied space on the Explorer Pipeline running northward through Illinois. But in mid-December 2016, the differentials were 5-10 cents/gal below futures.

The big dip Tuesday supported the story line that the Chicago market is historically prone to large swings.

"Chicago really struggles with liquidity," a second US light ends source said. "You think of it as a big place, but it just isn't really balanced. There's just so much refining capacity up there, and all that liquidity is cornered by just a handful of dudes."

The CBOB briefly jumped 3.50 cents/gal Monday when a Midwest refinery asked without a firm bid about the availability of the blendstock, the second source said. On Tuesday, the differential fell 5 cents/gal when the same refiner did not express buying interest, the second source said.

Liquidity in Chicago also was reduced with city at the northern end of a network of refined products pipelines coming from the Midwest and no refined products coming from the East Coast, market sources said.

"Chicago barrels are pretty much trapped," a third US light ends source said. "So they typically trade weaker in the winter against Group 3" in the Lower Midwest.