Oil Futures Gain as Fuel Shortages Intensify, Stocks Fall

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced for a fourth session Wednesday, underpinned by falling crude oil inventories in the United States joined with fuel shortages in southeastern and mid-Atlantic states as drivers rush to fill up gas tanks in the aftermath of last week's cyberattack that prompted closure of the nation's largest refined fuels pipeline network.

Spurred by social media, regional fuel shortages intensified Wednesday as motorists continued to line up at gas stations despite pleas from government officials to refrain from panic buying. GasBuddy data show 28% of gas stations in North Carolina and 17% in Virginia have run out of fuel, with stations as far as West Virginia and Kentucky also running out of gasoline.

As of Wednesday, governors in Florida, North Carolina, Georgia, and Virginia declared state of emergencies and have taken steps to relax fuel transport rules to ease shortages at the pump. The U.S. Department of Transportation and the White House have also allowed 10 states affected by the cyberattack on the Colonial Pipeline to use interstate highways to move fuel. All 10 states are also covered under a separate emergency declaration issued May 9 granting truck drivers making emergency fuel deliveries in areas affected by the pipeline disruption relief from federal hours of service limits and other safety regulations.

The Colonial Pipeline said in a statement Tuesday it was readying a full restart of operations, a decision that could be made later Wednesday. A ransomware attack last Friday forced the Georgia-based company to shut down its entire infrastructure network, stretching 5,500 miles from Houston, Texas, to Linden, New Jersey. Around 45% of refined fuel consumed along the U.S. East Coast flows through the network, including gasoline, diesel, jet fuel, home heating oil and fuel used by the U.S. military.

"Markets experiencing supply constraints and/or not serviced by other fuel delivery systems are being prioritized. Since our pipeline system was taken offline, working with our shippers, Colonial has delivered approximately 967,000 barrels (~41 million gallons) to various delivery points along our system," said the company in a statement Tuesday night.

The complex saw gains continue after the release of inventory data from the Energy Information Administration showing commercial crude oil inventories fell by a smaller-than-expected 426,000 barrels (bbl) last week and remained about 2% below the five-year average at 484.7 million bbl. A combination of lower run rates, higher crude production and a drop in exports prompted the smaller-than-expected drawdown. Reports indicate some Gulf Coast refiners have reduced runs in response to the Colonial closure this week.

Gasoline stockpiles unexpectedly added 378,000 bbl from the previous week versus calls for a 600,000 bbl draw as demand for the transportation fuel stalled below 9 million barrels per day (bpd) for the third straight week through May 7.

Traders expect gasoline stockpiles to be sharply drawn down amid the shutdown of the nation's largest supply network. In just five states served by the Colonial Pipeline -- Georgia, Florida, South Carolina, North Carolina, and Virginia -- gasoline demand was up by a collective 40.1%, lifting nationwide consumption by 20% from the week prior.

On the session, NYMEX June West Texas Intermediate futures gained 80 cents to settle at $66.08 bbl -- the highest settlement on the spot continuous chart since March 5. The international crude benchmark Brent contract for July delivery advanced 77 cents to finish above $69 bbl at $69.32, also a two-month spot high. NYMEX June RBOB moved up 2.11 cents to $2.1610 gallon, the highest settlement on the spot continuous chart in three years. NYMEX June ULSD futures rallied 2.78 cents to $2.0695 gallon, edging off a 16-month $2.0810 gallon spot high.

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

Liubov Georges