After 2 Days Of Heavy Selling Knocked Energy Prices Down By Almost 10% To Start The Year

After 2 days of heavy selling knocked energy prices down by almost 10% to start the year, refined products started rallying late Tuesday after reports that Colonial pipeline was forced to shut its pipeline segment that delivers into the New York Harbor. 

Colonial’s line 3, which is the mainline running from Greensboro NC to Linden New Jersey, carries 880,000 barrels/day of refined products, (which is equivalent to roughly 7% of the daily US demand) was reportedly shut down for unplanned maintenance. 

The duration of this shutdown will be critical to determining its impact, while the location of the maintenance near the NC/VA border, and far away from the major metro areas that it transits, should aid in the speed of recovery. 

If the pipe comes back online by Saturday as they’ve tentatively scheduled, this will not be a big deal. Just as we saw with the recent spate of refinery outages that were largely shrugged off, if you’re going to have a major supply disruption, this is the time of year to do it as demand is typically at its lowest levels, even without the parade of winter storms sweeping coast to coast that’s keeping many drivers off the road. 

That said, there simply is no way to replace the main supply conduit in the region, so if the downtime lingers, it will become a huge deal very quickly.   Losing that supply outlet will create excess supply in spots upstream of the leak, potentially causing some Gulf Coast refiners to cut runs if they lack other outlets, and rapidly intensifying shortages downstream, in yet another painful reminder of how vulnerable this refinery-less region is to disruptions in the transportation portion of the supply chain.

The API reported a build of 3.3 million barrels of crude oil last week, along with an increase of 1.2 million barrels of gasoline while distillates declined by 2.4 million barrels. The EIA’s report is due out at the holiday-delayed timing of 10am central today, and is sure to have lots of noise in the numbers due to the widespread refinery issues and year-end positioning of inventories. 

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