Colonial outage impact muted in Latin America

Markets in Latin America that are typical export destinations for US Gulf coast refiners have not seen any significant impact from the Colonial pipeline outage, as the arbitrage economics for exports have remained largely unchanged with Gulf coast prices hovering near multi-year highs.

Sources in Brazil, Peru, Colombia, Paraguay, Argentina and Ecuador are reporting minimal concern over the Colonial pipeline outage, which has tightened fuel supplies across the US east coast while trapping products in the US Gulf coast.

The pipeline outage began on 7 May following a randomware attack and is expected to continue until the end of this week. In the meantime, some refiners in the US Gulf coast have turned to floating storage, while others have reduced runs.

Export cargo loadings have been largely stable, as high prices on the US Gulf coast continued to limit arbitrage economics.

An average of 1.61mn b/d of gasoline, diesel and jet fuel have loaded from the US Gulf coast in the five days following Colonial's shutdown, mostly stable from an average of 1.59mn b/d during the first seven days of May, according to estimates from Vortexa as of this morning. These waterborne loadings do not include overland truck or rail volumes from the US into Mexico.

The lack of a significant rise in exports corresponds with a lack of a price decrease in the Gulf coast. Gulf coast ultra-low sulphur diesel prices rose to $1.99/USG yesterday, the highest level since May 2019. Gasoline prices rose to $2.07/USG on 10 May, matching the highest level since early March, when prices were at their highest since October, 2018.

Record-high renewable volume obligation (RVO) offers some offsets to high Gulf coast prices, but arbitrage economics out of the Gulf coast have generally remained unchanged from before the Colonial pipeline outage.

Industry sources in Mexico said yesterday that the country was ready to receive higher imports from the US Gulf coast as long as storage allows, but only if prices are discounted.

Vessel availability the main variable

A possible Jones Act waiver could tighten vessel availability in the coming days, which could affect cargo flows out of the US Gulf coast.

Some traders are already diverting some foreign-flagged vessels for domestic routes from the US Gulf coast to the Atlantic coast in anticipation of the waiver. All available Jones Act-compliant vessels, currently the only kind permitted to transport cargoes between US ports, have been booked up since the Colonial outage.

By Chunzi Xu