A restart decision today on the Colonial Pipeline network supplying nearly half of Atlantic coast transportation fuels will determine oil flows for weeks to come.
Moving forward with a phased restart of the pipeline network that moves 2.5mn b/d of gasoline, diesel and jet out of the US Gulf coast will ease panic-driven supply shortages. Failing a timely restart could rekindle import activity that cooled early this week and cut US Gulf coast refiners banking on the high-demand summer driving season that begins at the end of this month.
Federal regulators have eased fuel and transportation requirements to stretch supplies throughout the southeast, where distributors have fewer supply options. The Colonial Pipeline system moves fuel from Texas, Louisiana and Mississippi through a 5,500-mile (8,851km) network across the southeast and Atlantic coast up into the New York Harbor market.
Operators shut the network on 7 May to prevent a ransomware infection from spreading to critical pipeline systems. The company resumed some supply lines and terminals over the weekend, and has staged roughly 2mn bl of fuel for a restart. But the main gasoline and diesel pipelines feeding the system remain shut pending confirmation that they are safe to restart.
Priced to restart sooner
The company said on 10 May that it expected to begin a phased restart of the system this week — a timeline that discouraged imports. European benchmark Eurobob oxy gasoline that opened the week at a $4/t premium sank to a discount yesterday on the assumption that the supply would not be needed in the US. Northwest European gasoline premiums to front-month Brent fell by $1/bl following the plan announcement, and were at a $9.74/bl premium today, narrowing as Brent prices rose.
Those prices have fallen on confidence that the US already has sufficient supply. Gasoline stockpiles in the southeastern region most dependent on the system rose immediately before the shutdown, to within expected seasonal ranges for the region. Diesel stockpiles fell but remained at roughly expected volumes for the season.
Stockpiles were rising in the US Gulf coast, which relies on Colonial as an offtake for the majority of the fuel moving into the east coast. But adequate supply means little without the ability to deliver those volumes.
A prolonged outage on the pipeline network will force run cuts at the more than 7mn b/d of US Gulf coast refining capacity able to send fuel into the system. Some refiners have already adjusted rates. Conditions helped cut heavy sour crude prices in the US Gulf coast to their lowest levels since April 2020 as the region's complex refiners weigh reducing operations. But fading interest in offshore floating fuel storage suggests more confidence that pipeline operations will resume.
