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USAC product cracks retreat as Colonial Pipeline prepares to restart

Highlights

Colonial Pipeline to restart by midday

Full return will take several days

US inflation risks eyed

New York — ICE New York Harbor ULSD crack versus Brent fell to around $16.91/b, down around 50 cents from a 14-month high at the close May 12. The ICE NYH RBOB crack versus Brent, which had closed at the highest since August 2017 on May 12, was down around 20 cents at $21.01/b.

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Colonial Pipeline said it expects to deliver fuel to all of its markets by midday May 13 following the substantial progress made overnight on the restart after being downed for five days from a cyberattack.

Colonial had halted all pipeline operations on May 7 because of a ransomware attack, restricting the primary artery for gasoline and refined products from delivering more than 100 million gal/d of fuels. Colonial stretches more than 5,500 miles from the Houston refining hub to The New York Harbor, supplying about 45% of all the gasoline and diesel fuel consumed on the East Coast.

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The weakened cracks come amid a broader slide in energy prices.

At 1451 GMT June NYMEX RBOB was down 5.15 cents at $2.1095/gal and June ULSD was 5.86 cents lower at $2.0109/gal.

While Colonial's announcement was an "encouraging development," the pipeline will take several days to completely return, and "there is significant panic buying in the United States (even in locations not served by the pipeline) which exacerbates the impact of the shortfall," according to S&P Global Platts Analytics.

Gasoline inventories in the Northeast are expected to fall to five-year lows in the week started May 9 while those with US Gulf Coast refiners are expected to rise, as products begin to make their way through the pipeline, according to Platts Analytics.

NYMEX June WTI was down $1.93 at $64.15/b and July ICE Brent was $1.85 lower at $67.47/b.

"Colonial Pipe is set to restart, easing crack spreads as alternative solutions are also implemented to fill the short-term gap," TD Securities analysts said in a note. "Notwithstanding, oil prices are nudging lower alongside waning risk sentiment resulting from fears that inflation will force the Fed's hand."

The US consumer price index hit a 13-year high in April, Department of Labor data showed May 12, increasing concerns that the US Federal Reserve could raise interest rates to help mitigate inflation risks, a move likely to temper energy demand in the longer term.