May 14, 2021 [Oil Price] – Colonial Pipeline’s mainlines remained down May 10 following a cybersecurity attack May 7, restricting the flow of refined products from the US Gulf Coast to the US Atlantic Coast, and sparking a wave of clean tanker activity.

Colonial was able to return some of its pipeline laterals to connect some terminals and destinations for deliveries and is working to return the entire system back to service by the end of the week.

The price reaction has been modest so far, apart from clean tanker rates. But the outage has caused a shift in refined products trade flows, as cargoes were fixed to fill a spot market shortage on the USAC, and as cargoes were shipped from the USGC to alleviate a surplus of stranded barrels.

Some refiners on the USGC were also said to be cutting rates because of growing supplies.

USAC gasoline and diesel inventories remain roughly on par with seasonal averages; however, according to S&P Global Platts Analytics, if the pipeline remains down, inventories will reach five-year lows by May 14.

And if “consumers collectively decide to fill up their gas tanks due to fear of a shortage, it could cause a shortage,” according to Platts 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.”

Ernie Barsamian, CEO of The Tank Tiger terminal storage clearinghouse, said most terminals should have 10 to 15 days of fuel supplies, so the impacts should not be as severe as feared.

US President Joe Biden said May 10 the Department of Energy is “working directly with Colonial to get the pipelines back online and operating at full capacity as quickly and as safely as possible.”

“We’re prepared to take additional steps, depending on how quickly the company is able to bring this pipeline back to full operational capacity,” Biden said, noting the need for spending on cybersecurity as part of the negotiations around his $2 trillion American Jobs Plan. “We need to invest to safeguard our critical infrastructure.”

The ransomware attack was connected to the DarkSide criminal organization linked to Russia, according to media reports. Biden said there is no evidence yet that the Russian government was involved in the attack, but the hackers are in Russia.

“They have some responsibility to deal with this,” Biden said, adding that he plans to meet with Russian President Vladimir Putin soon.

TRADE FLOWS

**Refined products imports into the USAC are increasing to fill the supply shortage, with at least 9.56 million barrels, mostly gasoline, now expected to discharge in the week ended May 14, data from ship tracking service Kpler shows, up from 8.24 million barrels the week prior.

**US implied gasoline demand on a four-week moving average has climbed to 8.9 million b/d the week ended April 30 from 7.9 million b/d in early January as coronavirus restrictions have lifted, US Energy Information Administration data shows.

**Refined products exports from the USGC are increasing to ease the supply surplus, with roughly 18 million barrels expected to be exported the week ended May 14, up from 13.7 million barrels the prior week, Kpler data shows.

**As many as seven charterers were heard in the USGC spot freight market looking to cover cargoes with options for discharge in Europe, and multiple reports of cargoes for floating storage in the USGC were also reported by shipping sources.

**Marginal storage on the USGC is likely hard to secure, as inventories are high. USGC gasoline inventories were at 86 million barrels the week ended April 30, close to the maximum observed level of 96 million barrels last year, EIA data shows.

**USGC diesel stocks at 46 million barrels were roughly 11 million barrels below last year’s high seen in August, EIA data showed.

**The US Department of Transportation issued temporary hours of service waivers May 9 for motor carriers of fuels in order to avoid supply disruptions.

PRICES

**Clean medium range tanker rates rallied as buyers on the USAC looked to cover supply shortages, with S&P Global Platts assessing the UK Continent to USAC rate at $21.12/mt on May 10, up from $16.50/mt May 7.

**The USGC-UKC MR rate jumped nearly $10/mt to be assessed at $25.04/mt as those long USGC barrels looked to either export or store on water.

**Spot CBOB taken off Colonial for delivery along the USAC jumped 2.95 cents to June RBOB futures minus 4.65 cents/gal, based on a trade and rebid heard at futures minus 4.75 cents/gal.

**Diesel barrels taken off Colonial were assessed 1.15 cents higher at NYMEX June ULSD plus 2.50 cents/gal.

**June NYMEX RBOB settled up 65 points at $2.1334/gal, while June ULSD climbed 60 points to settle at $2.0166/gal, both falling from an overnight rally on an increase in imports to the USAC, and as Colonial was expected to return by the end of the week.

**US Renewable Identification Numbers prices jumped as buyers covered renewables obligations from refined product imports. Platts assessed current-year D6 RINs at $1.76/RIN, up from $1.7525/RIN on May 7.

INFRASTRUCTURE

**Colonial Pipeline said it had reopened some smaller lines between terminals and delivery points, and is working to restore service on its main pipeline network (lines 1, 2, 3 and 4) by the end of the week.

**Colonial ships 1.5 million b/d of gasoline on its Line 1 pipeline and 1.16 million b/d of distillates on its Line 2 pipeline, 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 stretches more than 5,500 miles from the Houston refining hub to New York Harbor, supplying about 45% of all the gasoline and diesel fuel consumed on the East Coast.

**Some USGC refiners were said to be cutting runs on fears of a prolonged outage, including Total at its 225,500 b/d Port Arthur, Texas, refinery; Motiva at its 607,000 b/d refinery, also in Port Arthur; and Citgo at its 418,000 b/d Lake Charles, Louisiana, plant, according to market sources and media reports.

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