The largest US Colonial fuel pipeline is still largely closed; impact and reopening – fr

The largest US Colonial fuel pipeline is still largely closed; impact and reopening – fr

Storage tanks at the Pelham Colonial Pipeline Co. junction and tank farm in Pelham, Alabama, the United States, Monday, September 19, 2016.
Luke Sharrett | Bloomberg | Getty Images

3 possible scenarios

“The timing of the reboot is the critical question,” analyst Roger Read said in a note on Sunday. He described three possible date ranges:
1. Less than five days: If a partial restart of the pipeline begins by Wednesday, there will be “no significant or lasting impact.”

2. Six to 10 days: Refiners may need to reduce the amount of crude oil they process if the pipeline remains closed for up to 10 days. Inventories will rise on the US Gulf Coast, causing prices to fall, while prices on the East Coast will rise, the analyst said. The East Coast is also likely to import more water-based fuel, and one-time shortages will begin to occur in parts of the southeastern United States.

3. More than 10 days: Gulf Coast refiners will almost certainly have to cut back on production, and oil prices may weaken relative to water-based crudes to encourage exports. “Expect significant fuel shortages in the interior of the southeastern United States,” Wells Fargo said in the note.

Why is this important

Colonial operates the largest refined products pipeline in the country and transports 2.5 million barrels per day, according to its website. It connects refineries on the US Gulf Coast to more than 50 million people in the southern and eastern United States.
The pipeline transports gas, diesel, heating oil and jet fuel.

Which scenario is likely?

Patrick De Haan, head of petroleum analysis at GasBuddy, said there was not much information on when the pipeline might come back online.

“There really hasn’t been any news,” he told CNBC’s “Street Signs Asia” Monday.

“Even the well-placed sources I’ve spoken to really have nothing to say, and so the market really has no idea if it could be online tomorrow, if it’s going to take three days,” he said. he declares.

Perhaps this is why the market reacted “very cautiously”.

Gasoline futures rose 1.28% to $ 2.1542 per gallon, while fuel oil futures rose 0.73% to $ 2.0252.

West Texas Intermediate crude futures, the US benchmark, rose 31 cents to $ 65.21 per barrel. The international benchmark Brent traded at $ 68.65 per barrel, gaining 37 cents. Natural gas futures fell 0.74% to $ 2.936 per million UK thermal units.

“It’s unclear whether Colonial or the authorities in this case even have a clue as to when this might be resolved on their own,” De Haan said. “I think you see the market reacting very cautiously, not knowing if it could be five, seven, 10, 14 days. “

What can be done?

Barges can be a “good alternative” for transporting refined products to other parts of the United States, De Haan said. However, the government should renounce the Jones Act, which requires trade between US ports to be conducted on ships built, owned and operated by US citizens or permanent residents.

“I think it could happen relatively soon, but again it can give details of the current situation,” he said. “Maybe the federal government doesn’t think it’s necessary yet. “

Analysts from RBC Capital Markets said in a note that the East Coast could reduce inventories, rely on other districts or increase gasoline imports – but those options would cause energy prices to rise.

As the blackout continues, the situation could become more serious as time presses, De Haan said.

“In a day or two to come, we might start to see products run out or completely sold out in some of these affected areas,” he said.

– CNBC’s Emma Newburger contributed to this report.


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