Most Important Refined Fuel Pipeline In US Knocked Offline

Market TalkMonday, May 10 2021
Pivotal Week For Price Action

The most important refined fuel pipeline in the US, and arguably the world, was knocked offline by a ransom ware attack Friday, and most of that system was still offline Monday morning causing supply allocations to be locked down across the East Coast, and double digit price increases by suppliers from Florida to New England. 

Gasoline futures are up 8 cents since the news started to break Friday morning, which is only about half of the increase we saw when Colonial was forced to shut its mainline in 2016 due to a leak. One of the big differences this year is that the pipeline wasn’t operating at capacity prior to the event, so there’s a little more supply cushion available than there was in prior years. So far the relatively muted response in both futures and basis markets suggest that the big traders don’t believe this will be a long term event.

You can read plenty of guesses as to when operations will be restored on the numerous articles written about this situation over the weekend, but at this point, no one outside of the hackers probably can say for sure. The bad news about the widespread media coverage of this event is that it’s more likely to encourage people to fill up tanks with fuel they don’t need, which can create shortages even if the pipeline was operating at normal rates. 

Here’s a good estimate for the likely scenarios of how this situation will play out https://www.cnbc.com/2021/05/10/largest-us-fuel-pipeline-colonial-still-mostly-shut-impact-and-reopening.html

To help minimize the shortage, Driver hour waivers have already been granted. RVP waivers and a Jones Act waiver will also be discussed this week, but have not yet been approved. No matter what measures are taken, it’s impossible to replace more than 100 million gallons of fuel delivery capacity in a short period of time, so these measures will just help ease the shortages if the downtime is extended, not eliminate them.

Closing the barn door after the horse has escaped? The White house has created a task force to deal with the hack

Insider trading? Money managers increased their net length in refined products last week ahead of the pipeline shutdown. While it’s extremely unlikely that any hedge funds that make up the bulk of those positions knew this was coming, it’s possible the hackers would try to make money off of this situation, and could provide another avenue to tracking down the culprits. Given that the net length held by large speculators in both WTI and Brent was also up on the week, the positioning ahead of the shutdown was more likely due to optimism for economic recovery than anything sinister.

In other news that no one will care about until the Colonial situation is resolved: Baker Hughes reported an increase of 2 oil rigs last week, snapping a 2 week decline. Ethanol and RIN values continued their spike on Friday, but some early selling in grain markets this morning could mean a pull-back is in the cards.

Click here to download a PDF of today’s TACenergy Market Talk.

Market Update 5-10-21

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Market TalkThursday, Mar 28 2024

Energy Markets Are Ticking Modestly Higher Heading Into The Easter Weekend With Crude Oil Prices Leading The Way Up About $1.25/Barrel Early Thursday Morning

Energy markets are ticking modestly higher heading into the Easter Weekend with crude oil prices leading the way up about $1.25/barrel early Thursday morning, while gasoline prices are up around 2.5 cents and ULSD futures are about a penny.

Today is the last trading day for April HO and RBOB futures, an unusually early expiration due to the month ending on a holiday weekend. None of the pricing agencies will be active tomorrow since the NYMEX and ICE contracts are completely shut, so most rack prices published tonight will carry through Monday.

Gasoline inventories broke from tradition and snapped a 7 week decline as Gulf Coast supplies increased, more than offsetting the declines in PADDs 1, 2 and 5. With gulf coast refiners returning from maintenance and cranking out summer grade gasoline, the race is now officially on to move their excess through the rest of the country before the terminal and retail deadlines in the next two months. While PADD 3 run rates recover, PADD 2 is expected to see rates decline in the coming weeks with 2 Chicago-area refineries scheduled for planned maintenance, just a couple of weeks after BP returned from 7 weeks of unplanned repairs.

Although terminal supplies appear to be ample around the Baltimore area, we have seen linespace values for shipping gasoline on Colonial tick higher in the wake of the tragic bridge collapse as some traders seem to be making a small bet that the lack of supplemental barge resupply may keep inventories tight until the barge traffic can move once again. The only notable threat to refined product supplies is from ethanol barge traffic which will need to be replaced by truck and rail options, but so far that doesn’t seem to be impacting availability at the rack. Colonial did announce that they would delay the closure of its underutilized Baltimore north line segment that was scheduled for April 1 to May 1 out of an “abundance of caution”.

Ethanol inventories reached a 1-year high last week as output continues to hold above the seasonal range as ethanol distillers seem to be betting that expanded use of E15 blends will be enough to offset sluggish gasoline demand. A Bloomberg article this morning also highlights why soybeans are beginning to displace corn in the subsidized food to fuel race.

Flint Hills reported a Tuesday fire at its Corpus Christi West facility Wednesday, although it’s unclear if that event will have a material impact on output after an FCC unit was “stabilized” during the fire. While that facility isn’t connected to Colonial, and thus doesn’t tend to have an impact on USGC spot pricing, it is a key supplier to the San Antonio, Austin and DFW markets, so any downtime may be felt at those racks.

Meanwhile, P66 reported ongoing flaring at its Borger TX refinery due to an unknown cause. That facility narrowly avoided the worst wildfires in state history a few weeks ago but is one of the frequent fliers on the TCEQ program with upsets fairly common in recent years.

Click here to download a PDF of today's TACenergy Market Talk, including all charts from the Weekly DOE Report.

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Most Energy Contracts Are Ticking Lower For A 2nd Day After A Trickle Of Selling Picked Up Steam Tuesday

Most energy contracts are ticking lower for a 2nd day after a trickle of selling picked up steam Tuesday. ULSD futures are down a dime from Monday’s highs and RBOB futures are down 7 cents.

Diesel prices continue to look like the weak link in the energy chain, with futures coming within 1 point of their March lows overnight, setting up a test of the December lows around $2.48 if that resistance breaks down. Despite yesterday’s slide, RBOB futures still look bullish on the weekly charts, with a run towards the $3 mark still looking like a strong possibility in the next month or so.

The API reported crude stocks increased by more than 9 million barrels last week, while distillates were up 531,000 and gasoline stocks continued their seasonal decline falling by 4.4 million barrels. The DOE’s weekly report is due out at its normal time this morning.

RIN values have recovered to their highest levels in 2 months around $.59/RIN for D4 and D6 RINs, even though the recovery rally in corn and soybean prices that had helped lift prices off of the 4 year lows set in February has stalled out. Expectations for more biofuel production to be shut in due to weak economics with lower subsidy values seems to be encouraging the tick higher in recent weeks, although prices are still about $1/RIN lower than this time last year.

Reminder that Friday is one of only 3 annual holidays in which the Nymex is completely shut, so no prices will be published, but it’s not a federal holiday in the US so banks will be open.

Click here to download a PDF of today's TACenergy Market Talk.