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Colonial Pipeline Updates Supply Flow

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Colonial Pipeline issued several updates on Tuesday. Gasoline will be shipped on "Line 2" (previously distillate only line) in the near term to help alleviate gasoline supply concerns in the Southeast. Colonial "Line 1", the pipeline which suffered the leak in Alabama, may begin limited movements in a few days. The situation is still very fluid, what with the multiple updates and ingenuity of the pipeline shift plan. What we do know is that "Line 1", which transports over a million barrels of gasoline per day, has been shut for five days. The total loss of gasoline through the system (PADD I) is not an insignificant number and will continue to grow even though Colonial is making great efforts to alleviate the loss.

The NYMEX oil market shifted lower on Tuesday, with WTI taking the brunt of the decline, on worries that Gulf Coast refineries may be forced to trim run rates (demand) in response to the Colonial Pipeline shutdown. With the half the pipeline currently out of service, new refined production is likely being stored on site (Gulf Coast). However, with each passing day and fewer barrels entering the pipeline, that storage is filling up. If refiners cannot find an outlet for their barrels (other pipelines, such as Explorer, or waterborne deliveries), they may be forced to cut refinery usage.

The dip in oil prices coincided with another large drop in U.S. equity markets, so there was also an element of "risk off" in commodities. The oil market will look towards this morning's Department of Energy inventory summary to see if crude oil and gasoline stocks rebound (build) after last week's large reported draws. A catch up (delayed imports) is expected, though more draws or even limited builds could lead to another market run up.

Officially, October WTI settled $1.39 lower at $44.90. After moving higher in the first few days of the month, oil prices have alternate up and down days recently (though the down days have been bigger than the up days). Still, current flat price is roughly in the middle of the range seen in the last month.



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