USGC diesel stable with Colonial pipeline shut

The US Gulf coast diesel spot market had a muted response this morning to Colonial Pipeline's system outage, as market participants said they expect the situation to be resolved soon and to have little impact on the region.

The Colonial pipeline system, which connects US Gulf coast refiners with markets in the Atlantic coast region up to New York Harbor, halted shipments on all main lines on Friday because of a ransomware attack.

US Gulf coast cash prices for ultra-low sulphur diesel (ULSD), which trade at a differential to ULSD Nymex futures, traded lower before markets opened, but bids and offers had returned to the previous session's levels by mid morning. No trades have been reported since the market opened today.

"Most people are holding off to see what happens," one market participant said.

The one market that did trade today was for Gulf coast ULSD BALMO futures, which track "balance of month" values for diesel. Those futures traded at prior-session levels by mid morning, indicating an expectation for stable values through the end of May. Cargo brokers in the region said that interest had not picked up for exports in response to the situation.

"I think this is short lived," another market source said early this morning. "I do not expect the main lines to be down beyond close of business tomorrow."

Colonial's late morning announcement that it plans to restore service by the end of the week could affect market sentiment this afternoon, but it did not immediate generate any trades for Gulf coast ULSD.

Line space values had not moved from Friday's level at -0.55¢/USG, amid muted market interest. Line space trading is an indicator for how pressured space is on the Colonial pipeline. Line space values move to positive values when demand for shipping space on the pipeline exceeds available space. Muted interest and a stable negative line space value indicate there is no sense of urgency in the market so far for distillates space on the Colonial system.

A lack of urgency may stem from the fact that shipments on the pipeline have been below average since June 2020, leaving around one-third of known pipeline capacity unused between Houston, Texas, and Greensboro, North Carolina. Total diesel and jet fuel movement on the Colonial pipeline from the Gulf coast to the Atlantic coast from June 2020 through February 2021 stably averaged just below 26mn barrels per month, according to the US Energy Information Administration (EIA). The five year average before June 2020 was just over 33mn barrels per month, and the largest reported monthly movement on the pipeline was 39mn barrels, in December 2019.

From Greensboro to the pipeline's terminus in Linden, New Jersey, distillates share shipping space with gasoline. Diesel and jet fuel may not be able to ship at full capacity, depending on shipping demand for gasoline on the second half of the line.

By Wendy Dulaney