Colonial outage weighs on US midcon diesel, gasoline

Gasoline and diesel prices in the southern portion of the US midcontinent have fallen amid an influx of pipeline shipment from the US Gulf coast, where suppliers are looking for alternative outlets for fuel trapped by the Colonial Pipeline outage.

The US midcontinent saw an accelerated surge in refined product shipments from the US Gulf coast after the Colonial Pipeline shut its 5,500-mile network between the Gulf coast and US Atlantic coast due to a ransomware attack. The pipeline said a phased startup was underway today at 5pm ET today.

Shipments to the midcontinent were already high amid an open arbitrage, so much so that the primary pipeline transporting fuel from the Gulf coast to the region, the Explorer pipeline, became fully booked through the end of May even before the Colonial outage.

Midcontinent diesel stocks rose by 3.5pc to 26.7mn bl the week ended 7 May, according to the US Energy Information Administration (EIA). Inventories of midcontinent CBOB rose by 2.5pc from the prior week to a three-week high of 28.6mn bl.

Market participants are reporting a rise in Gulf coast diesel and gasoline loaded onto the Magellan Pipeline since Colonial shut its system on 7 May. Some of these barrels are headed to storage terminals in central and west Texas, but the majority are headed to Tulsa, Oklahoma.

Diesel prices at Tulsa fetched the narrowest premium to the June Nymex ultra-low sulphur diesel (ULSD) contract today since mid-February at 0.5¢/USG. That spread has narrowed by a combined 3.15¢/USG since Colonial announced its outage on 7 May.

The price drop shut the arbitrage for sending Gulf coast ULSD to Tulsa closed on paper today for the first time since 24 March. Tulsa's premium over the Gulf coast fell short of Magellan Pipeline's shipping tariff by 0.76¢/USG. Tulsa ULSD previously averaged a 7.91¢/USG premium to the Gulf coast through the first seven trading days in May.

Tulsa CBOB prices similarly fell to the widest discount to the Nymex in six months at 8.63¢/USG today. Tulsa's premium to the Gulf coast widened by 0.25¢/USG today, which reopened the arb at 0.09¢/USG above Magellan's 5.78¢/USG shipping tariff. Tulsa's premium to the Gulf coast increased as the Gulf coast's discount to the Nymex widened by 0.38¢/USG to 14.5¢/USG.

By Jared Ainsworth