Oil Futures Slump on Colonial Restart, Inflation Worries

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 plummeted on Thursday, with the U.S. crude benchmark retreating from a two-month high $66.08 per barrel (bbl) settlement after Colonial Pipeline announced it had begun the restart process for its 2.5 million barrels per day (bpd) refined fuels pipeline system late Wednesday following a cyberattack that prompted a five-day shutdown, while a rout in financial markets over inflation concerns and a strengthening U.S. dollar further pressured the oil complex.

"Following this restart, it will take several days for the product delivery supply chain to return to normal. Some markets served by Colonial Pipeline may experience, or continue to experience, intermittent service interruptions during the start-up period. Colonial will move as much gasoline, diesel, and jet fuel as is safely possible and will continue to do so until markets return to normal," said the company late Wednesday.

The pipeline outage caused gasoline shortages and emergency declarations from Virginia to Florida and led some refineries in the Gulf Coast to curb crude inputs. U.S. Department of Transportation and White House 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.

Amid the disruption, the national retail gasoline price rose above $3.00 gallon for the first time since October 2014.

In financial markets, U.S. equity futures slumped for a fourth consecutive session Thursday as global stocks extended their retreat from all-time highs amid concern over hotter-than-expected inflation. Wednesday's April consumer price index showed the fastest headline increase since 2008, with price spikes for used cars, airfares and other pandemic-hit components stoking the biggest monthly increase in 'core' inflation in nearly four decades.

The April CPI data, alongside record highs for commodities such as copper, lumber and underlying wages pressures in a domestic economy that has the biggest number of unfilled positions in history, has sparked a debate of the nature of inflation in the global recovery and the Federal Reserve's insistence -- repeated Wednesday by Vice Chairman Richard Clarida -- that it will be temporary.

In early trading, NYMEX June West Texas Intermediate futures plummeted $1.48 to below $65 bbl at $64.61 bbl and international crude benchmark Brent contract for July delivery declined $1.45 to $67.89 bbl. NYMEX June RBOB slumped 4.01 cents to $2.1215 gallon. NYMEX June ULSD futures declined 4.26 cents to $2.0269 gallon.

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

Liubov Georges