Oil prices fell on Tuesday as the prospect of the main U.S. East Coast gasoline pipeline remaining shut for the rest of this week led some U.S. Gulf Coast refiners to cut output, denting their appetite for crude.
Effect of the Pipeline Outage on oil Supply
Colonial Pipeline, which transports more than 2.5 million barrels per day (BPD) of gasoline, diesel and jet fuel, shut down its network on Friday after being hit by a cyberattack.
“It’s quite possible we’ll see reduced crude oil demand. Some refineries in Texas have already scaled back runs because of the pipeline being out. That will weigh on crude oil prices pretty obviously, even though parts of the pipeline are restarting and Colonial is expecting the pipeline to be back to capacity by the weekend.” Lachlan Shaw, National Australia Bank’s head of commodity research.
The U.S. gasoline futures contract and U.S. heating oil futures, which spiked after the outage, have retreated to pre-Friday levels on the prospect of the restart.
The privately-owned company said on Monday it was working on restarting in phases with “the goal of substantially restoring operational service by the end of the week.”
It has begun manually operating its 700,000-barrel-per-day multi-product fuel line between Greensboro, North Carolina, and Maryland for a limited time using existing inventories.
The outage, however, has already led Motiva Enterprises LLC to shut two of three crude units at its 607,000 bpd Port Arthur refinery in Texas, the largest in the United States.
Total SE also cut gasoline output on Monday at its 225,500 bpd Port Arthur refinery because of the pipeline outage.
Meanwhile, the rapid spread of coronavirus infections in India, which has increased calls for the government of Prime Minister Narendra Modi to lock down the world’s second-most populous country.
The World Health Organization has classified the coronavirus variant first identified in India last year as one of global concern, with some preliminary studies showing that it spreads more easily.
However, analysts are expecting data to show U.S. crude inventories fell by about 2.3 million barrels in the week to May 7, following an 8 million barrel drop the previous week.
Gasoline stocks are expected to have fallen by about 400,000 barrels, six analysts estimated on average ahead of reports from the American Petroleum Institute industry group on Tuesday and the U.S. Energy Information Administration on Wednesday.
OPEC is also expected to publish its monthly oil market report on Tuesday, which will include April production numbers.