NEW YORK, June 22 (Reuters) - The operator of the biggest U.S. fuel pipeline system said on Thursday demand to transport gasoline to the country's populous northeast is the weakest in six-years, the latest symptom of a global oil market grappling with oversupply.
The summer is typically when gasoline demand peaks in the world's biggest oil consuming country as motorists hit the road for vacation, keeping their gas tanks full strains the capacity of the country's refiners and pipelines.
This year, there is so much fuel stored in tanks in the Northeast that Colonial Pipeline Co said in a notice to customers that demand from refiners and fuel traders to bring gasoline through its pipeline to the region from the refining hubs in the country's south was the worst in six years.
For the first time since 2011, demand for the pipeline was below capacity for a five-day period starting early next week, Colonial said on Thursday. The news pushed down prices for gasoline in the Gulf region, where the pipeline begins.
Typically, demand exceeds the pipeline's space, forcing refiners and traders to supplement volumes through the pipeline with tanker shipments or imports.
"The only reason they wouldn't be full is clearly that inventory levels are high enough that there is no incentive to move product to New York," said Sandy Fielden, director of oil and products research, Morningstar in Austin, Texas.
Even when inventories are high, shippers typically keep pumping full volumes just to ensure they keep their rights to the line space for when they really need it, said Fielden.
"The situation is quite unusual," he said.
The firms using the line have been making a loss on pumping barrels through it for months, because of high inventories and low prices for gasoline in the northeast. With no sign of those inventories easing much, refiners and shippers have decided to cut volumes.
"It's purely economic - why ship into a negative arb(itrage) for that long," one trader said.
The driving season has kicked off with strong demand. While the pace of consumption is below the record volume of 2016, demand in two of the past five weeks has hit all-time highs, according to the U.S. Energy Information Administration.
But demand has not had much impact on inventories, because U.S. refiners are also pumping out a record volume of motor fuel for the second straight year.
Gasoline inventories in the region are just shy of the five-year high for this time of year, after falling last week by 1.3 million barrels last week to 67.6 million barrels, according to the government data.
Global oil prices have languished despite an effort by the world's top producers to limit output. U.S. crude futures plunged to a 10-month low on Wednesday.
Colonial Pipeline's main gasoline line, Line 1, which runs to Greensboro, North Carolina from Houston, carries about 1.3 million barrels of fuel every day.
Colonial did not detail in its notice to shippers how far below capacity demand was for the pipeline.
A terminal operator in New York Harbor said tanks are full and barges that typically move products out of the U.S. gasoline hub are sitting empty.
"We are typically short barges, but we are long now," the operator said. "People are just not moving product."
Colonial connects Gulf Coast refineries with markets across the southern and eastern United States through more than 5,500 miles (8,850 km) of pipelines, delivering gasoline, diesel, jet fuel and other refined products.
Colonial indicated it did not expect demand to exceed capacity for the next five-day cycle through the line, and informed shippers it would therefore not follow the typical process for rationing space.
Gulf Coast gasoline grades weakened on Thursday. Conventional motor <RU-DIFF-USG> fuel fell by as much two cents to trade five cents per gallon under benchmark gasoline futures on the New York Mercantile Exchange, before bouncing back to around 3.25 cents. That was still down from the discount of 3 cents on Wednesday. (Reporting by Devika Krishna Kumar and Jarrett Renshaw in New York; Editing by Simon Webb and Marguerita Choy)