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Market Events
May 11, 2021
Colonial Pipeline Cyberattack Brings Uncertainty to Southeastern U.S. | Advisor Pulse

5.17.2021 - The area serviced by the Colonial Pipeline is well on its way of getting back to normal following a weekend of full operation on the pipeline and adequate time to distribute refined products through fuel terminals and to fueling stations. Media headlines are still keying in on areas of gasoline shortage but by and large the worst is behind us for diesel fuel. The overall situation has significantly improved for fuel supply and is gradually lowering the wholesale price premiums for diesel in the region.

How Have Wholesale Diesel Prices Responded to the Colonial Pipeline Outage So Far?

Diesel prices in the states served by the Colonial Pipeline are still experiencing regional premiums, which we expect to gradually subside in the days ahead as inventories at truck stops continue to build. The price movement premiums continue to be most significant in North Carolina, South Carolina, and Virginia—the states farthest removed from Gulf Coast and Northeast refining and storage centers—but have subsided to between 8.0 and 8.5 cents per gallon above the national average price movements.

The other significant news over the weekend came from Georgia, where Governor Brian Kemp extended the state fuel tax exemption an additional week. This exemption for both gasoline and diesel tax rates is therefore in effect until Saturday, May 22.

How Has Diesel Supply Been Impacted by This Outage So Far?

Diesel and gasoline outages are minimal after the weekend.  At the time this was written (mid-day May 17), there are only 1 station from two of the largest truck stops with diesel outages throughout the states along the Colonial Pipeline. The station is expected to regain supply tonight.  It is unlikely that diesel outages will occur moving forward.

The next update from the Advisor team will be on Wednesday, May 19, during our 2pm central monthly webcast for clients.

type: embedded-entry-inline id: 1TgqBlwFfNS8S3BNK4mzDW5.14.2021 Update - Colonial Pipeline Company’s afternoon press release on May 13 confirmed the entire pipeline system was operating and product delivery was underway in all markets from Texas to New Jersey. The company continues to warn of potential service interruptions as the pipeline ramps up but plans to move as much fuel as possible before flows return to normal in the coming days. The image at right highlights the pipeline’s most recent status.

Some states are still navigating fuel shortages—primarily gasoline—that were worsened by consumers flocking to stations in fear of a long-term outage. That said, the pipeline’s progressive return to full capacity will ease the supply pressures that have unraveled since late last week. Exact timing will hinge on Colonial Pipeline Company’s safety precautions. Additionally, downstream logistical dynamics of getting products from the pipeline to storage terminals to stations will dictate when the outage is no longer a concern. Market sentiment suggests that time will come over the weekend, but we will reassess the pipeline’s status on Monday and determine any lingering diesel price affects.

How Have Wholesale Diesel Prices Responded to the Colonial Pipeline Outage So Far?

The Colonial Pipeline disruption reinforced the vulnerability of U.S. infrastructure, the interconnectedness of the energy supply chain, and diesel’s uniqueness compared to what is typically tied up in news headlines. That said, diesel prices have been relatively protected from the surge in gasoline demand earlier this week. This has ultimately made the diesel price response more directly tied to the actual supply ramifications of the pipeline outage, as opposed to the added pressures of panic buying that has occurred in the gasoline market.

The announcement of the pipeline’s restart helped push both national and regional diesel prices down considerably yesterday. North Carolina continues to lead the charge in terms of its diesel price premium over the rest of the country at about 9 cents per gallon. Meanwhile, Virginia, South Carolina, Tennessee, Maryland, and Alabama are still experiencing a differential of more than 5 cents per gallon over the U.S. market. Georgia’s state diesel tax exemption—set to expire this weekend—has muted any upward diesel price pressure tied to the Colonial outage. The state’s diesel price premium will likely align to neighboring states once the fuel tax is reinstated on Sunday.

How Has Diesel Supply Been Impacted by This Outage So Far?

Diesel and gasoline outages persist today but are much improved since the restart of the pipeline.  Diesel continues to fair better than gasoline and the major truck stop providers were able to keep diesel outages to a minimum.  We expect the outages will subside completely in the coming days if no other disruptions occur. 

As of noon today (May 14), the current outages are focused in South Carolina and Georgia, with 14 and 17 percent of the stations experiencing outages, respectively.  Additionally, the only other states with outages from two major truck stops are in North Carolina and Florida ranging from 5 to 8 percent of station outages. 

5.13.2021 Update - Yesterday’s (May 12) much-anticipated late afternoon press release from Colonial Pipeline Company stated the pipeline’s restart is underway after sustaining a week-long outage. This afforded impacted states a sigh of relief because regional panic buying from consumers has stressed station-level inventories and exacerbated consequences of the pipeline’s offline distribution.

The pipeline is not expected to return to full capacity for a few more days and some states were even expected to see temporary service disruptions during the restart. That said, as of this morning (May 13), Colonial Pipeline Company stated all its served markets will be receiving refined product deliveries—in some capacity—by the afternoon. The image below outlines their plan to resume operations.

Despite the media’s keen focus on gasoline fundamentals, diesel has remained more insulated from the consumer behaviors that have created sporadic gasoline shortages throughout the southeast and east coast. We will continue monitoring the pipeline’s progress, but its return to operations will ease the supply chain pressures that have unfolded in the past week.

How Have Wholesale Diesel Prices Responded to the Colonial Pipeline Outage So Far?

The range of diesel price premiums in states fed by the Colonial Pipeline slightly expanded today but the supply-induced price pressure has become more centralized. North Carolina is still showing the greatest differential to the rest of the U.S. at nearly 9 cents per gallon. Meanwhile, Tennessee, South Carolina, Maryland, Virginia, and Alabama all have diesel premiums of more than 5 cents per gallon over the national average. It is important to note that Georgia’s price level would likely fall close to the states mentioned above, but their state diesel tax exemption—set to expire on May 15—has mitigated upside price pressure from the Colonial outage.

How Has Diesel Supply Been Impacted by This Outage So Far?

Diesel supply at truck stops continues to fair better than gasoline within the Southeast due to mass consumer stockpiling. Major truck stop providers have logistical advantages when compared to smaller stations and have been able to sustain most of their operations. With the announcement for the restart of the Colonial Pipeline, it is expected these shortages will subside in the coming days.

The current outages are most prevalent in North Carolina, South Carolina, and Georgia, with most states either reporting less outages or the same as the prior day. South Carolina has experienced the most disruption, with 30 percent of the stations from two major truck stops without diesel supply. For the same two fuel providers, North Carolina and Georgia reported diesel outages at 12 percent of stations. All other states reported 0-5 percent of stations with diesel outages. Upon full operation of the Colonial Pipeline, there will still be logistical challenges in the days ahead of restocking fuel terminals and ultimately distributing refined products to stations and truck stops.

5.12.2021 Update - The narrative of gasoline and diesel supply continues to diverge as we enter the sixth day of the Colonial Pipeline outage. An influx of gasoline purchases as consumers flock to fill up at stations has led the national media attention with more significant shortages. Meanwhile, diesel supply and prices have fared considerably better, though there are still intermittent areas of shortage.

The most impacted market event we are watching is for an official announcement from the Colonial Pipeline Company on their restart plan, which is supposed to come by the end of day today (May 12).

How Have Wholesale Diesel Prices Responded to the Colonial Pipeline Outage So Far?

The biggest headline on price—for both diesel and gasoline—came yesterday when Georgia Governor Brian Kemp suspended the state’s fuel excise tax through Saturday to help alleviate some of the price pressure from the outage. Outside of Georgia, regional premiums are ticking up slightly within the area the Colonial Pipeline serves. North Carolina is showing the greatest differential to national average movements at a premium of 6.6 per gallon. The national diesel wholesale price has risen by an average of 4.6 cents per gallon when compared to a baseline of Friday, May 7.

How Has Diesel Supply Been Impacted by This Outage So Far?

Diesel supply at truck stops continues to fair better than gasoline within the Southeast. Major truck stop providers have logistical advantages when compared to smaller stations and have been able to sustain most of their operations. There are a growing number of intermittent outages being reported with most of them stating that supply is returned within hours or overnight. These outages are more prevalent in North Carolina, South Carolina, and Georgia due to their distance from major refining and storage infrastructure in the Gulf Coast and Northeast. North Carolina and South Carolina have experienced the most disruption, with mid-day reports showing anywhere from 10 to 30 percent of stations with supply shortages for two major truck stop providers. These same providers have announced between 10 and 20 percent of locations with supply issues in Georgia, with other states in the region showing 0 to 10 percent of stations with diesel outages.

5.11.2021 Update - The current outage of the Colonial Pipeline came with some good news within the last day, as the Colonial Pipeline Company announced their plan to have “substantially returned operations” by the end of the week. While the details of substantially returning service may be a bit unclear, the larger indication of progress and a general timeline is a positive sign for supply chains moving through the Southeast and East Coast U.S.

How Have Wholesale Diesel Prices Responded to the Colonial Pipeline Outage So Far?

Southeast and East Coast states reliant on fuel supply from the Colonial Pipeline system have seen a slight range of wholesale diesel price swings relative to the national market. Some states on the outskirts of the pipeline’s path have seen little-to-no upward diesel price pressure since the Colonial’s main artery went offline late last week. Others, in the heart of the pipeline’s distribution chain, are seeing diesel premiums of up to nearly 5 cents per gallon compared to the rest of the country. These station-level price developments speak to the regional nature of the event and the relatively muted price response thus far, regardless of what many gasoline-centric headlines suggest. We do not expect upward diesel price implications to drastically escalate with the pipeline set to reopen by the end of this week.

At the time of this fuel market update, market trading volatility shows today’s diesel price gains are stuck around 2 cents per gallon, with no major discrepancies across different regions of the country. This indicates incremental diesel price increases in the coming days should be minimal because of available inventories that will alleviate most supply concerns between now and the pipeline’s restart.

How Has Diesel Supply Been Impacted by This Outage So Far?

Supply shortages have been dominating mainstream media headlines. However, at the time of this publication, there have been a limited number of outages reported for major diesel fuel providers. There have been a few reports of intermittent supply concerns within Georgia, North Carolina, and South Carolina. These outages have thus far been limited to a few hours before supply is delivered. The duration of the outage will ultimately determine the magnitude of the supply disruption.

5.10.2021 Original Post - The Colonial Pipeline—the main transportation means of gasoline, diesel, and jet fuel for Southeastern and East Coast states—was completely shut down on Thursday due to what was later revealed as a ransomware attack. News of the outage spread Friday and throughout the weekend with multiple federal agencies stepping in to assist in resolving the issue. The Colonial Pipeline Company has communicated they are making plans for a safe restart, but no details have been provided on the timeline to resume operations.

What is the Colonial Pipeline and Why is it Important?

The Colonial is the largest pipeline within the United States, acting as the main artery of refined product distribution from the gulf refineries of Houston, TX through the Southeast and up the East Coast to Linden, NJ. It moves roughly 100 million gallons of products a day—nearly half of East Coast demand—with little to no alternatives of distribution for the areas it serves.

What Does the Current Outage Mean for Wholesale Diesel Prices?

The Colonial Pipeline is a part of downstream transportation when considering the full energy supply chain. Since this portion is after oil production and storage as well as oil refining, disruptions normally lead to regional price volatility (especially for the states along the Colonial’s path). Inventory levels of gasoline and diesel on the East Coast are currently around their five-year average, meaning that a pipeline restart within the next few days is unlikely to strain prices or product supply. However, if the current outage lingers beyond this week, there may be a more significant price impact.

In the interim, a federal emergency declaration has been made for the region to allow tanker drivers to exceed maximum hours of service. This will allow for some easing of price or supply concerns in the days ahead.

Media headlines have referenced early-market trading volatility of 5-7 cents per gallon for gasoline and diesel heading into the business week. At the time of this publication, these gains have pared down below 1 cent per gallon, which speaks to the minimal price implications we expect to hit downstream wholesale diesel prices in the short term.

In the days ahead, price implications are likely to occur at the fuel terminal and station level (downstream from these spot region pricing). The Advisor Team will be following these downstream prices to provide more accurate reflections of the impact on your supply chain.

What Does the Current Outage Mean for Diesel Supply?

Inventories in this region of the country (PADD 1) are currently around the five-year average for gasoline, diesel, and jet fuel. This allows for a cushion of supply that can weather the short-term implications of the pipeline outage. Should the issue linger beyond this week, then a concern for areas of a supply shortage could arise.

What Could be the Potential Long-Term Ramifications of the Outage?

An outage that extends beyond a week could become a greater concern for multiple parts of the United States. A prolonged timeframe without a plan to restart would clearly strain supply and bring price premiums to the area served by the Colonial Pipeline. Additionally, the lack of this main outlet for Gulf Coast refineries could disrupt the broader U.S. energy supply chain.

In the medium-term, the U.S. Gulf Coast can divert product to the Upper Midwest and other mid-continent markets. This can bring slight price discounts for these regions with the incremental supply introduced. If Gulf Coast refineries find themselves with excess supply after the initial divergence of products, the possibility of reduced run rates or some idled refineries within the major refining hub could become a reality. This type of scenario could bring more national impacts, though it is too early for our team to speculate on the total implications.

Brett Wetzel
Brett Wetzel

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