Oil Futures Rally Thursday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures settled higher Thursday afternoon after rallying on a refinery outage in Indiana that serves the Chicago cash market and the delay in restarting full service on a Colonial product pipeline that ships gasoline from Texas to New Jersey that serves the Southeast and New York Harbor markets.

"The rally was led by gasoline and it started when [BP's] Whiting refinery shut its largest crude unit, and accelerated this afternoon when Colonial delayed its pipeline by one week," said analyst Phil Flynn at Price Futures in Chicago.

Sources familiar with operations at the 413,500 barrels per day (bpd) BP refinery at Whiting, Indiana, told DTN Thursday that the company was forced to shut its largest crude oil unit, Pipestill 12, and is evaluating the cause of the glitch, the timeframe for repairs and potential restart of the unit. The unit is expected to be idled for up to three weeks, the sources said, which could reduce product supply in the Midwest.

Colonial Pipeline's main Line 1 that ships gasoline was shut down Friday, Sept. 9, due to a leak in Alabama, and is now operating with limited service. Full restoration of Line 1 operations have been delayed until next week.

Last Tuesday, Colonial projected completion of repairs this weekend. However, the company today said crews have run into snags in their attempt to bring the line back into full service, and as a result they would delay the planned restart until next week.

"The Line 1 efforts were delayed last evening and into this morning due to gasoline vapors on the site," a spokesperson said in an email to DTN.

The spokesperson added that additional downtime is expected in delivering gasoline ahead of the now delayed restart, and schedules are being updated to reflect these changes.

The incident prompted short covering, generating aggressive buying in the NYMEX RBOB futures complex.

NYMEX October West Texas Intermediate crude futures rose 33 cents to $43.91 per barrel (bbl) at settlement, reversing off a new two-week low of $43.26. November Brent futures on the IntercontinentalExchange added 74 cents to a $46.59 bbl settlement, reversing off a two-week low of $45.67.

NYMEX October ULSD futures jumped 3.45 cents to $1.4162 gallon settlement, near a two-day high of $1.4271. NYMEX October RBOB futures soared 6.87 cents to $1.4302 gallon at settlement, paring gains after spiking to a $1.4433 two-day high.

The gains for WTI and ULSD were curbed by bearish data points in the Energy Information Administration's weekly supply report issued Wednesday and by expectations that increased oil exports from Libya and Nigeria would start flowing soon, adding to an already oversupplied global oil market.

Both Libya and Nigeria are members of the Organization of Petroleum Exporting Countries, which have scheduled informal talks Sept. 26-28 in Algeria to find ways to stabilize the oil market. Many analysts, however, are doubtful that a meaningful agreement to rein in oversupply would be reached.

On Wednesday, EIA reported gasoline stockpiles rose 567,000 bbl, distillate fuel supplies climbed 4.6 million bbl and crude oil inventories fell 559,000 million bbl for last week. The drawdown in crude followed a massive 14.2 million bbl decline week prior amid weather-related offloading delays, although at 510.8 million bbl commercial crude oil in storage is 12% above the comparable year-ago period.

George Orwel can be reached at george.orwel@dtn.com