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Gasoline Contango Widens as East Coast Stockpiles Increase

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Feb. 6 (Bloomberg) -- March gasoline’s discount to April widened as supplies increased around New York Harbor, the Nymex contract’s delivery point.

Gasoline for March delivery increased 1.52 cents to 18.24 cents below April, the widest contango for the two contracts nearest to expiration in almost a year. Stockpiles in the central East Coast, including New York Harbor, jumped 3.39 million barrels to the highest level since March 30. Outright prices rose as Brent crude prices rallied, increasing the cost of imports.

“The fact that the majority of the build took place in PADD 1 will pressure RBOB prices on the Nymex,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.

Gasoline futures rose 0.23 cent to $3.0397 a gallon on the New York Mercantile Exchange, after touching $3.0071 following the inventory report’s release. Volume was 11 percent above the 100-day average for the time of day.

The spread between Brent and West Texas Intermediate crudes widened 23 cents to $20.11 a barrel, the largest gap since Dec. 25.

“A strong Brent price means a strong product price in the New York Harbor,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The strong Brent-WTI spread is keeping RBOB futures strong now.”

The March gasoline crack spread strengthened 12 cents to $31.05 a barrel against West Texas Intermediate, and weakened 11 cents to $10.94 against Brent.

Imports of the motor fuel to the East Coast jumped to 666,000 barrels a day, the highest level since Sept. 7.

Different Specifications

The increasing March-April spread indicates near-term supplies of fuel are adequate. The March contract represents winter-grade fuel, which is easier to produce, while the April contract is for summer-grade gasoline.

“March gasoline is not deliverable back against the April contract, they have different specifications, so these two contracts are always going to trade independently of each other,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Technically you can reprocess hydrocarbons into summer-grade fuel, but it’s expensive to do so, and your only alternative is to store it until next winter.”

Heating oil futures fell 0.55 cent to $3.1858 a gallon on the Nymex on volume that was 0.8 percent above average.

Distillate stocks fell by 1.04 million barrels last week, according to Energy Department Data. Inventories on the East Coast fell by 1.22 million.

Heating oil supplies slipped 276,000 barrels in the East Coast, or PADD 1 district.

Gasoline at the pump, averaged nationwide, rose 1.3 cents to $3.546 a gallon, AAA said on its website today. Prices gained for the 20th straight day and are 1.9 percent higher than a year ago.

To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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