Colonial cancels, reinstates 7.8 RVP

OREANDA-NEWS. July 02, 2015. Colonial pipeline has shipped just a single batch of its 7.8 RVP conventional 87M gasoline since April, a lack of liquidity that led the pipeline operator to briefly cancel the grade — then reinstate it when the announcement caused confusion among gasoline traders.

A source at the pipeline would not comment on the size of the batch, but Colonial typically wants at least 75,000 bls to ship a product.

About 17 hours after announcing cancellation of the grade, Colonial reinstated it this afternoon, citing an "unforeseen impact on pricing and markets." The operator said it would "work with customers on a long-term plan for M1 shipments."

"I know there were a lot of calls," Colonial spokesman Steve Baker said. "A lot of confusion. We did not foresee that."

The grade has long held benchmark status to the refining and trading community, and its assessment by price-reporting agency Platts is used as the basis to settle the CME's 87M lowest fungible RVP financial swap contract, which has 18,460 lots open interest. Argus competes with Platts in publishing market reports, news and other information on energy markets, including price assessments.

Spot market traders were generally unanimous in the belief that 7.8 RVP 87M trades are only performed due to swaps exposure.

"All these banks, producers, traders, etc. have pretty substantial positions on summer swaps," said one trader.

Since the start of both Colonial's 20th shipping cycle and the 7.8 RVP 87M season on 1 April, the spot market has seen 26 trades for 7.8 RVP 87M, a total of 650,000 bls. All of these deals were conducted through the Platts market-on-close assessment process it operates with ICE.

This means that despite the deals clearly being marked for input into the Colonial pipeline system, as much as 88pc of the transactions were never fully carried out.

Colonial pipeline traditionally does not comment on the volume of the various products it ships. Market participants were not surprised at the minuscule volumes of 7.8 RVP 87M entering Colonial.

"It doesn't exist," said one trader.

Indeed, low liquidity for 7.8 RVP 87M gasoline was a key factor in the US naphtha and gasoline blendstocks markets shifting to a 9.0 RVP 87M gasoline trading basis over the last couple of years. That grade is a much more robustly traded finished gasoline compared to 7.8 RVP 87M gasoline. While the 7.8 RVP blend saw just 26 deals since 1 April, the 9.0 RVP 87M traded hands 970 times. The bulk of gasoline in the US remains blendstock prepared for oxygenate blending.

"The traders who trade paper are affected," said one market participant. "Most don't care. No one ships M1 (7.8 RVP 87M). They ship A1 (7.8 RVP CBOB). M1 needed to go away."