NEW YORK, Dec 27 (Reuters) - Demand to ship gasoline on Colonial Pipeline has sunk to a two-month low as Gulf Coast supplies are increasingly being exported or sent to the Midwest rather than to the New York harbor, three sources familiar with the matter said on Wednesday.
Colonial Pipeline Co, the largest U.S. fuel network, has consistently allocated space for at least the past two months, meaning demand has exceeded capacity on the pipeline. But it would not ration space on its main gasoline line for the next five-day shipping cycle, known as "Cycle 2," the sources said, which suggests lower demand.
Colonial spokeswoman Malesia Dunn said the company does not speculate on rumors. The sources could not speak for attribution because the information is not public.
Refinery outages in the Midwest have sent traders scrambling to buy Gulf barrels, sending prices in those regions to one-month highs last week.
Gulf prices have also been supported by export demand, particularly out of Mexico, traders said. New York harbor (NYH) prices have weakened due to steady imports and seasonal slowdown in demand, making it less lucrative to ship to the East Coast.
"NYH is just too cheap ... not pulling barrels," one East Coast trader said.
A prolonged production cut at ExxonMobil Corp's 238,600 bpd Joliet, Illinois, refinery and Marathon Petroleum's purchases of spot barrels prompted a surge in Chicago gasoline prices.
In June, demand to haul gasoline on Colonial's line to the country's populous Northeast fell for the first time in about six years.
Chicago CBOB CBOB-DIFF-MC gasoline traded as high as 11.50 cents a gallon above January futures last week, the highest since mid-November. Meanwhile, RBOB RBOB-DIFF-NYH in the New York harbor traded as low as 0.60 cent a gallon under January futures, traders said, the lowest since May.
Colonial's Line 1, with a capacity of 1.2 million bpd, runs from Houston to Greensboro, North Carolina. Allocation is typically for the segment north of Collins, Mississippi. The pipeline's Cycle 1 schedules on Thursday.
Traders have also been clearing out inventory ahead of year-end, and there is less to transport at the beginning of the year, one shipper said.
Weakness in New York prices should be temporary, traders said. Chicago prices tend to ease in the first quarter, and demand in Mexico is expected to decline as peak driving season concludes.
Meanwhile, gasoline inventories in the New York harbor are on the decline, falling by 400,000 barrels last week, according to traders citing Genscape data. That should help revive some Colonial volumes, traders said. (Reporting by Devika Krishna Kumar in New York; Editing by Matthew Lewis)