Los Angeles gasoline differentials trended to their lowest levels since February early Wednesday as stocks hit a nearly four-month high, although the trend could be short-lived with five empty cargoes soon arriving from Mexico to the West Coast.
Energy Information Administration data released Wednesday showed inventory up 48,000 barrels week on week to 29.24 million barrels for the week ended December 9. It was the 1.79 million barrels higher than the same week last year and highest weekly level since 29.88 million barrels for August 26.
"It is winter, that time of year when gasoline stocks are high," one market source said. "That's why they're shipping out gasoline."
Market sources said Los Angeles CARBOB was talked down 1.75 cents to NYMEX January RBOB futures minus 17.50 cents/gal early Wednesday in quiet trading, the lowest level since minus 26 cents/gal on February 23. Los Angeles suboctane dropped from a 2-cent discount to a 4.50-cent discount to the California-specific CARBOB grade.
Suboctane is an export grade not allowed for road use in California. It is sent to neighboring states, but mostly Mexico. Platts trade flow software, cFlow, showed five ships heading up empty from Mexico to the West Coast for loading, mostly likely with gasoline. Only one or two have been typically seen on the route in recent months.
"There's a reason Mexico is buying a lot of gasoline now. Because it's cheap," the source said. "PBF Torrance is back in the mix. They're a big producer of suboctane gasoline."
The 151,300 b/d Torrance plant near Los Angeles has experience a power outage in October and fire in November that kept it from full rates until recently. The Los Angeles CARBOB differential reached plus 39.75 cents/gal on October 28 and has been slowly declining since then.
But the differential has averaged plus 5.1 cents/gal in 2016 and a 32.3-cent premium over the NYMEX in 2015 on refinery issues, especially surrounding the Torrance plant that PBF bought from Exxon this summer.
The high differentials may have kept a main export customer -- Mexico -- from any large draws off the West Coast. One Latin American trader said Mexico has pulled more Asian cargoes this year, including at least seven from China, although a mix of gasoline and diesel.
Five ships -- Alpine Moment, High Saturn, Nord Independence, STI Onyx and Tula -- were expected to arrive in the next week, two in Seattle, one in San Francisco and two in Los Angeles, cFlow showed.
West Coast refineries were still running at only 80% of operational capacity, down from 80.6% the week before and from 85.1% last year, EIA data showed. Gasoline production, however, rose 90,000 b/d to 1.6 million b/d, which is 63,000 b/d above last year.
