Oil Futures Dip as Traders Eye Colonial Restart, Inflation

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange softened in early trade Tuesday amid signs the supply disruption caused by the shutdown of the Colonial Pipeline late last week following a ransomware cyberattack will have a limited impact on fuel supply longer term, with the company setting a goal to restore service across its system by the end of the week.

The Colonial Pipeline, Co., the Georgia-based operator of the nation's largest refined fuels pipeline, said in a statement Monday that it would restart its network in a phased-in approach, with a subsequent update late Monday indicating Colonial was operating its mainline 4 manually utilizing existing inventory. The pipeline operator further noted all pipeline laterals or stub lines between terminals and delivery points are operational.

"We continue to evaluate product inventory in storage tanks and are working with our shippers to move this product to terminals for local delivery," the company said.

The 2.5 million barrels per day (bpd) 5,500-mile pipeline network originates in the Houston area and carries refined fuels from Gulf Coast refineries to states in the southeast and mid-Atlantic with an endpoint in Linden, New Jersey. Line 4 is a 504,000-bpd mixed product pipeline originating at the Greensboro tank farm in North Carolina and running north to Woodbine, Maryland, where the Dorsey tank farm is located. The Colonial network includes a series of lateral or stub lines off the system's mainlines, including pipelines connecting several airports located in Georgia, Tennessee, North Carolina, Virginia, and Maryland.

There pipeline's shutdown might have had an impact on Gulf Coast refinery operations, with Motiva Enterprises LLC, operator of the 607,000 bpd Port Arthur, Texas, refinery, the nation's largest refinery, reportedly shut the 195,000 bpd VPS-4 CDU and the 80,000 bpd VPS-2 CDU along with the 49,000 bpd reformer and 19,200 bpd lube oil hydrocracker, according to sources. Temporary idling production on the two CDUs reduces production at the Motiva's refinery by 45%. The company declined to comment on the reported shutdowns.

Further weighing on the complex, global equities slumped early Tuesday and Treasury yields rose modestly amid concerns that rising inflation in the United States and elsewhere will chip away at the post-pandemic recovery. The U.S. Labor Department will publish its benchmark reading on consumer price inflation Wednesday, with markets forecasting a monthly gain of 0.5%, fueled by the reopening of large U.S. states and a tight labor market.

April's U.S. employment report showed the economy gained a mere 244,000 new jobs compared with expectations for one million new positions despite overwise robust economic growth and booming consumer spending. The unemployment rate unexpectedly increased to 6.1%, while average monthly earnings were up 0.7% even as most workforce additions were in the battered hospitality and leisure industries.

Disappointing jobs report offered some evidence that enhanced unemployment benefits in combination with closed schools might be preventing some workers from taking on the job. Faced with criticism from Republican lawmakers, President Joe Biden said in a statement Monday that workers can't turn down a job and still get the benefits, adding that, "We're going to make it clear that anyone who is collecting unemployment who is offered a suitable job must take the job or lose their unemployment benefits."

Meanwhile, Republican governors of Montana, South Carolina, and Arkansas all pulled out of pandemic unemployment programs, saying the financial assistance program is doing more harm than good. Furthermore, several GOP lawmakers have introduced legislation to end the enhanced unemployment insurance at the end of the month and convert it into a back-to-work bonus program. Chicago Federal Reserve President Charles Evans, however, expects job growth will pick up pace through 2021 despite a massive miss in April.

"I think the disappointing jobs report will be a 'one-month thing' in association with the restarting of the economy," he said Monday.

In early trade, NYMEX June West Texas Intermediate futures fell 58 cents to $64.34 per barrel (bbl), and the international crude benchmark Brent contract for July delivery declined 55 cents to trade near $67.76 bbl. NYMEX June RBOB slipped 0.83 cent to $2.1252 gallon after trading at the highest price point since May 2018 at $2.2170 gallon on Monday, and NYMEX June ULSD futures moved lower to $2.0086 gallon, backing off a $2.0776 16-month high on the spot continuous chart.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges