New York — NYMEX RBOB and ULSD futures rallied on the open May 9 as Colonial Pipeline's mainlines remained down following a cybersecurity attack, restricting the primary artery for refined products to much of the South and East Coast
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NYMEX June RBOB rallied 5.57 cents to $2.1826/gal before quickly slipping back to trade around $2.165/gal, up 3.81 cents.
NYMEX June ULSD jumped 2.67 cents to $2.0373/gal before slipping back to trade around $2.036/gal, up 2.54 cents.
Colonial stretches more than 5,500 miles from the Houston refining hub to the New York harbor, the delivery point for NYMEX RBOB and ULSD, supplying about 45% of all the gasoline and diesel fuel consumed on the East Coast.
Colonial said May 9 some of its "smaller lateral lines between terminals and delivery points are now operational" and it was in the process of returning other laterals.
However, Colonial's mainlines (Lines 1, 2, 3 and 4) remained offline while the company is "developing a system restart plan," the company said.
Colonial ships 1.5 million b/d of gasoline on its Line 1 and 1.16 million b/d of distillates on its Line 2, with both lines ending in Greensboro, North Carolina. In Greensboro, product is able to continue up to New York Harbor on Lines 3 and 4, ending in Linden, New Jersey.
Colonial halted all operations May 7 because of a cybersecurity attack involving ransomware. And while Colonial said it was working to restore service, it was unclear when the company's mainlines would return.
Likely bullish for European gasoline, tankers
The pipeline outage is bullish for USAC prices, likely opening an arbitrage for waterborne imports, specifically gasoline from Europe, as the USAC is heavily dependent on the Colonial system for supply. Thus, the outage will likely boost clean tanker rates and refined products prices overseas, unless Colonial returns to service soon.
USAC refined products inventories are roughly on par with seasonal averages, although with more drivers taking to the road as coronavirus restrictions ease in the US, gasoline inventories will likely soon tighten if supplies from Colonial are unavailable.
According to S&P Global Platts Analytics, if the pipeline remains down, inventories will reach five-year lows by May 14.
However, if "consumers collectively decide to fill up their gas tanks due to fear of a shortage, it could cause a shortage," according to Analytics. "For example, if 30 million cars went from 50% full to 90% full, that could be 4 million barrels drawn from service station tanks who would then try to refill from their suppliers. Such panic buying was a factor in the consumer gasoline shortages with the 1973 and 1979 oil crises."
Combined low and ultra low sulfur diesel stocks on the USAC at 39 million barrels the week ended April 30 were 7% below the five-year average, US Energy Information Administration data shows.
USAC gasoline inventories at 64.6 million barrels were 3% below the average.
USAC imports jumped following weather-related Texas refinery outages in February, with 36.7 million barrels of refined products imported in March, up from 25 million barrels in February, Kpler vessel tracking software shows. Roughly 33.5 million barrels are expected to be imported in May so far, Kpler data shows.
The surge in waterborne imports boosted clean tanker rates following the February refinery outages. The UK Continent-USAC medium range clean tanker market was assessed by Platts at Worldscale 125 May 7, down from w175 in mid-March.
In contrast, an extended Colonial outage would be bearish for USGC refined products prices, as barrels are stranded in the region.
US government officials were working with the pipeline company on the issue.
The Department of Energy "is coordinating with Colonial Pipeline Company, the energy industry, states, and interagency partners to provide situational awareness and support response efforts to this incident," DOE press secretary Kevin Liao said in an email. "DOE is also working closely with the energy sector coordinating councils and the energy information sharing and analysis centers, and is monitoring any potential impacts to energy supply."
In response to the incident, US Senator Edward Markey, Democrat-Massachusetts, said in a statement that an "understaffed, underprepared Transportation Security Administration—which had only six full-time staff on pipeline security as recently as 2019—cannot successfully ensure the security of dangerous and susceptible natural gas pipeline infrastructure."
"The federal inability to prevent and effectively respond to cyberattacks turns our pipeline system into a risk for communities and an increasingly vulnerable component of our electricity system," said Markey, a member of the Commerce, Science and Transportation Committee.