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Oil settles higher as traders eye gasoline demand and Colonial Pipeline developments

By Myra P. Saefong and William Watts

Oil futures settled higher on Tuesday, with parts of the U.S. suffering from some fuel shortages as Colonial Pipeline works to restore the system that provides 45% of the fuel consumed on the U.S. East Coast by the end of the week.

Crude prices had been seesawing between modest losses and gains during the session, pressured in part by the "realization that the pipeline won't be closed for long," said Matthew Parry, head of long-term analysis at Energy Aspects.

The Colonial Pipeline system was shutdown last weekend following a cyberattack (link), and has led to some fuel shortages in the Eastern U.S..

"Some refineries in Louisiana and eastern Texas that ship the majority of their output by the pipeline are likely to trim crude runs by up to 20% for a few days to manage inventories, while the pipeline is unable to receive oil products," Parry told MarketWatch.

However, "given the limited duration of any run cuts and still comfortable levels of oil product inventories in the U.S., the attack may not produce a significant increase in oil product futures prices if the duration of the outage is short lived," he said.

Read:U.S. moving to temporarily waive Jones Act after Colonial Pipeline ransomware attack (link)

Colonial on Monday said its goal was to "substantially" restore operations by the end of the week. Colonial closed its 5,500 mile pipeline over the weekend following the ransomware attack.

Read:Here's what the Colonial Pipeline cyber attack means for energy markets (link)

West Texas Intermediate crude for June delivery rose 36 cents, or nearly 0.6%, to settle at $65.28 a barrel on the New York Mercantile Exchange. July Brent crude , the global benchmark, added 23 cents, or 0.3%, to $68.55 a barrel on ICE Futures Europe.

If the pipeline isn't back up and running by the end of the week, "we could see gasoline prices go parabolic in the near term, as there are already reports of panic-buying by consumers across the southeast as well as gas stations that are out of fuel," said Tyler Richey, co-editor at Sevens Report Research.

Gasoline futures moved up by the settlement, with the June contract gaining 0.3% at $2.14 a gallon.

The pipeline shutdown stoked a spike in demand for gasoline, with some stations from Florida to Virginia running low or out of fuel, according to Patrick De Haan, analyst at Gas Buddy, on Twitter:

(link)

Read:Some gas stations in U.S. Southeast running out of fuel as Colonial works to restore pipeline service (link)

Also see: Will the Colonial Pipeline outage hike gas prices? It all depends on where you live (link)

Prices for crude oil had spent some time moving lower Tuesday, despite "violent conflicts in Israel that frequently drive up the risk premium," and a fire at the world's second-largest oil field in Kuwait, one of the world's leading oil exporters, wrote Eugen Weinberg, analyst at Commerzbank.

A fire at Kuwait's largest oil field on Monday injured two workers, but didn't affect production, news reports said (link).

The Organization of the Petroleum Exporting Countries on Tuesday left its forecast for global oil-demand growth for 2021 unchanged (link), while trimming its outlook for non-OPEC production.

Overall, as far as near-term oil prices are concerned "most traders are focused on developments in the physical markets that are keeping a lid on prompt month prices," said Troy Vincent, market analyst at DTN.

In the U.S., an "extremely disappointing" unemployment report last week is weighing on demand optimism, while this week Motiva's idling of crude distillation units (link) at Port Arthur due to the pipeline outage are "clearly weighing on immediate crude demand," he told MarketWatch.

Rounding out action on Nymex Tuesday, prices for June heating oil rose 1.2% to $2.04 a gallon. June natural gas added 0.8% to nearly $2.96 per million British thermal units.

In a monthly report released Tuesday (link), the Energy Information Administration forecast this year's West Texas Intermediate crude prices at an average $58.91 a barrel and Brent crude at $62.26, with both little changed from last month's forecast. It raised its forecasts for WTI and Brent by 0.4% each, to $56.99 and $60.74, respectively.

For natural gas, EIA Acting Administrator, Steve Nalley said the agency expects "growth in liquefied natural gas exports and domestic natural gas consumption to outpace growth in domestic production," with Henry Hub spot natural-gas prices averaging $3.05 per million British thermal units in 2021, up 50% from 2020.

The EIA also said it expects U.S. gasoline consumption to average almost 9 million barrels per day this summer, referring to the April to September period. That's 1.2 million barrels per day more than last summer, but still almost 600,000 barrels per day less than summer 2019.

On Wednesday, the government agency will issue its weekly data on petroleum supplies. On average, analysts expect crude supplies to post a fall of 4.1 million barrels for the week ended May 7, according to a survey conducted by S&P Global Platts. They also forecast a supply increase of 700,000 barrels for gasoline and a 2 million-barrel decline for distillate inventories.

-Myra P. Saefong; 415-439-6400; AskNewswires@dowjones.com

 

(END) Dow Jones Newswires

05-11-21 1520ET

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