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Colonial Pipeline pointing to week’s end for resumption of operations

Diesel markets shot higher for awhile on Monday but are headed back down

Photo: Colonial Pipeline

Colonial Pipeline, which carries fuel from the Gulf Coast region to the mid-Atlantic and Northeast, is now targeted to be back online by the end of the week.

In a statement released midday Monday, the company, which shut the line following a cyberattack, said it had a goal of “substantially restoring operational service by the end of the week.” The statement was conditional, noting that the process required “diligent remediation of our systems, and this takes time.”

“This plan is based on a number of factors, with safety and compliance driving our operational decisions,” Colonial said in its statement. 

It is possible that spot supply squeezes may develop along the line, given that there has been no northward flow of products on the main lines of Colonial since Friday. Gary Bevers, a longtime consultant to the wholesale and retail fuel industries, said there should not be any “widespread disruptions” if service is restored by the end of the week. “But the Colonial runs a long way and I wouldn’t want to be in the middle of the pipeline,” he told FreightWaves in a text message. “That is where they usually had shortages at the terminals.”

Beyond those possible spot shortages, the Colonial announcement quickly ends a petroleum products saga that could have resulted in significant pain for the trucking industry had it dragged on. The issue was not just that prices might have risen but also that truckers on the road might have faced difficulties actually getting fuel and being able to keep the wheels turning.

The price of ultra low sulfur diesel (ULSD) on the CME commodity exchange did shoot up overnight to as much as $2.0776/gallon, up from the Friday settlement of $2.0106. But by approximately 1:45 p.m. Monday, it had fallen back to $2.0203, up slightly less than 1 cent from the Friday settlement, a gain of 0.48%.

If the market had started to see significant physical tightness, it would have more likely shown up in the cash market, which trades over the counter as a differential to the CME price. The CME ULSD contract is based on delivery in New York Harbor, but it trades a month ahead. Trading that went on Monday would have been for barrels to be delivered in June, when presumably any impact from the Colonial closure would have mostly been wrung out of the market. 

Market sources said that physical market differential on Monday had risen approximately 1 cent per gallon relative to the CME price. For a one-day move, that is significant. But it is not the sort of strong reaction that might have been expected coming into the day.

In its statement, Colonial said it was continuing “to evaluate product inventory in storage tanks at our facilities and others along our system and … working with our shippers to move this product to terminals for local delivery.” 

Recent data from the Energy Information Administration showed ULSD inventories in the East Coast region, known by the EIA as PADD 1, were roughly 7 million barrels less than the five-year average for the final weekly report of April.

Colonial’s statement also said the hours-of-service waiver issued Sunday night by the Federal Motor Carrier Safety Administration “should help alleviate local supply disruptions.”

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.