The idling of ConocoPhillips' 185,000 b/d refinery in Trainer, Pennsylvania, will likely result in a tighter US Atlantic Coast distillate market and greater price volatility, with reliance on the Colonial Pipeline for the region's supply increased, market sources said Tuesday.
ConocoPhillips Tuesday said it had started idling the refinery, near Philadelphia, adding that if it could not find a buyer withing six months the facility would be permanently shut.
ConocoPhillips' announcement comes just weeks after Sunoco said it would place for sale its Philadelphia and Marcus Hook refineries, resulting in a potential loss of a combined 690,000 b/d in USAC refining capacity .
But whereas Sunoco's announcement in early September of the potential loss in its 505,000 b/d of refining capacity produced a shrug from distillate traders, ConocoPhillips' move may prove to be a tipping point in traders' eyes, one that could result in a sudden reversal of the region's chronically long market.
"Product supply is going to be cut, especially on the gasoline side, but also on the distillate side," a market source said. "So if demand stays, PADD I is looking pretty tight going forward."
Accordingly, USAC ULSD for New York Harbor barges and for Buckeye Pipeline were heard trading midday up 1.80 cents from Monday to October plus 6.80 cents/gal.
This transition also means greater reliance on the Colonial Pipeline as a key supplier to the region, sources said.
USGC refiners shipped to the USAC market 13.18 million barrels of jet fuel via Colonial in June, according to the latest data from the Energy Information Administration. For the same period one year ago, the volume was 1.49 million barrels less at 11.69 million barrels.
ULSD shipment saw a similar year-over-year boost, with 15.46 million barrels sent via pipeline to the USAC in June 2011, versus 13.57 million the year prior, a 1.89 million barrel increase.
But with greater reliance likely comes greater price volatility, since the volume of distillates arriving into the Linden, New Jersey, terminus varies greatly from cycle to cycle.
"If you think that we're at the mercy of the Colonial now," a more captive market is likely to follow should all three refineries not find buyers and resulted in being shuttered, a market source said.
New England, however, may not be as impacted since much of its supply comes from Irving Oil's refineries in Canada, sources said.
Colonial has a 55,000 b/d-expansion project underway on its 1.092 million b/d distillate Line 2, slated for for 2012 completion.
Timing becomes a factor, too, as the US Northeast begins its transition in 2012 to ULSD as the heating oil feedstock, sources said.
