Closure of colonial pipeline boosts clean European products
The gasoline market could be the biggest beneficiary of the pipeline closure
Cracks remain seasonally high, demand is set to increase
Transatlantic freight rates start to firm up, imports by sea are expected to increase
The shutdown of the Colonial pipeline in the United States has boosted sentiment in some European refined products, potentially encouraging higher flows to the world’s largest oil consumer while also impacting the diesel and tanker markets. clean, business sources said on May 10.
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The United States is a key importer of European gasoline and vacuum diesel, and some trade sources expect this arbitration to see increased activity if the pipeline shutdown continues to last through this week.
Colonial’s operator confirmed on May 9 that it had reopened smaller lines between terminals and delivery points, but its main pipeline network remains down with no recovery schedule after a cyber attack.
Colonial had halted all pipeline operations due to ransomware, preventing the main gasoline and refined products artery to much of the south and east coast from delivering more than 100 million gal / d of fuel and fuel oil.
S&P Global Platts Analytics said it expects a ripple on gasoline and diesel, although this is a potentially short-term event.
“European gasoline is a winner. More imports to New York in a relatively short trip. Clean freight is up for grabs,” Platts Analytics said in a note.
However, some European traders remained cautious on May 10.
“To be honest, I don’t have any major hopes for a market recovery,” said a fuel oil trader based in Europe. “My thinking is that this cyberattack won’t take more than a few days to fix. Ultimately, there is only online security.”
Gasoline cracks have already been sustained as spring demand resumes as COVID-19 vaccinations increase in the United States.
USAC’s refined product inventories are at about the same level as seasonal averages, although with more drivers hitting the road as restrictions ease, gasoline inventories are likely to tighten if Colonial supplies are not available.
“With the loss of approximately 1.5 million barrels / day of Colonial gasoline, stocks will hit 5-year lows (52.4 million barrels observed in October 2017) after 8 days of blackouts,” said added Platts Analytics.
A long-term pipeline failure would likely open a trade-off for waterborne imports, as the region relies heavily on Colonial for its supply.
NYMEX RBOB and ULSD futures rallied on May 9 as Colonial mainlines remained down. But prices dropped soon after and were pretty flat on May 10.
Meanwhile, the NYMEX June RBOB hit a high of $ 2.2170 / gal before falling back to trade around $ 2.1521 / gal at 9:24 a.m. GMT, up 2.52 cents. NYMEX June ULSD rose over 1% to around $ 2.0373 / gal on the morning of May 10. Meanwhile, ICE May diesel rose $ 6 / tonne to $ 556.50 / tonne at 9:00 a.m. GMT.
Freight rates for oil tankers’ transatlantic routes are also expected to get a boost. USGC refined products could be shipped by sea to USAC, although this would require the use of more expensive vessels under Jones Act. Shippers can apply for Jones Act waivers to the Department of Transport’s Marine Administration, which could not be reached for comment.
“[US Gulf Coast] PADD3 refiners will need to rebalance the commodity market if this route is impaired for a period of time, “Platts Analytics added.” We don’t think physical storage is a limit, but the structure of gasoline imposes storage loss. . We could see more Jones Act ships being used to resupply PADD1[US Atlantic Coast], depending on the duration of the failure. “
The closure of the pipeline could also lead to an increase in imports of refined products from the USAC, which would help keep the continued downward pressure on the prices of the continent’s clean tankers.
Rates for shipments from mainland Britain to the United States’ Atlantic coast, on a basis of 37,000 tonnes, firmed May 3-7 due to an increase in inquiries into gasoline shipments, but an opportunity to The open arbitrage perceived for ultra-low sulfur diesel was not apparent, as failed vessels prone to ship a high volume of ULSD cargo during transatlantic voyages.
The United States is a major importer of European vacuum diesel, which could also see some impact. Low sulfur VGO is used by a fluid catalytic cracker to produce more gasoline while HSVGO is processed in a hydrocracker to produce more diesel. American factories are the main exporters of diesel to world markets, while the United States is a large consumer of gasoline.
As the utilization rates of US refineries have increased, their demand for these products has also increased, according to trade sources.
The relative strength of gasoline cracking, coupled with the seasonal and post-lockdown increase in driving activity in the United States, has made gasoline, and therefore LSVGO, more valuable to refiners.