Futures Movers: Oil prices tally weekly gain as Colonial Pipeline drama subsides

United States

Oil futures rose Friday to settle higher for the week, as a key U.S. fuel pipeline reopened after being shut down for days in response to a ransomware attack.

Colonial Pipeline on Wednesday moved to fully reopen its 5,500 mile pipeline, which provides around 45% of fuel needs to the U.S. East Coast. The closure of the pipeline late last week triggered fuel hoarding and resulted in the closure of a swath of gas stations across the Southeast.

Read: White House says fuel supply returning through Colonial Pipeline but normalcy will take a ‘few days’

The pipeline restart is “the beginning of the end of the crisis, not the end of the end of the supply crunch,” said Michael Tran, commodity analyst at RBC Global Markets, in a note.

“At a minimum, such news should help stem fears of panic buying and clear the lines at the pump given that the worst-case scenario of a prolonged outage has been averted,” he said.

RBC estimated that the outage resulted in a 7.5 million barrel shortfall in East Coast gasoline and a 6 million barrel shortfall for distillate, totaling 13.5 million barrels.

Since the event was contained within a weekly Energy Information Administration reporting period, next week’s inventory numbers should largely reflect the entire outage, Tran said, adding that he doesn’t expect the closure resulted in significant bookings to move product across the Atlantic.

Still, while “Colonial may be closing the chapter on this crisis…the events of the week have exposed how vulnerable America’s energy infrastructure is,” said Tran.

West Texas Intermediate crude for June delivery CL00, +2.40% CLM21, +2.40% rose $ 1.55, or 2.4%, to settle at $ 65.37 a barrel on the New York Mercantile Exchange. July Brent crude BRN00, -0.01% BRNN21, -0.01%, the global benchmark, gained $ 1.66, or 2.5%, to finish at $ 68.71 a barrel on ICE Futures Europe.

With the gains on Friday, oil futures erased their losses for the week, with WTI climbing 0.7% higher and Brent up 0.6% from last Friday’s settlement, according to Dow Jones Market Data. That marked the third straight weekly rise for both benchmarks.

Read: Why so many commodities, including lumber and iron ore, have climbed to record highs

Fears of an extended pipeline shutdown that could have significantly curtailed refinery activity had weighed on nearby oil futures relative to later contracts, analysts said.

“If they had been forced to step on the run rate, it would have sidelined crude oil that had previously been used to produce gasoline,” said Robert Yawger, director of energy futures at Mizuho Securities, in a note. “Those fears no longer exist.”

Yawger said oil moved up “as refiners scramble to boil as much crude oil as possible to cover the five days of pipeline shut-in.”  

Colonial late Thursday said it had restarted its entire pipeline and commenced product delivery to all markets it serves.

“Following this restart, it will take several days for the product delivery supply chain to return to normal,” the company said. “Some markets served by Colonial Pipeline may experience, or continue to experience, intermittent service interruptions during this startup period.”

Colonial said it would move as much gasoline, diesel, and jet fuel as is safely possible and would continue to do so until markets return to normal.

Notably on the demand side for oil, however, the EIA reported an unexpected drop in the refinery utilization rate, said Tyler Richey, co-editor at Sevens Report Research. “that was cause for mild concern as we should be seeing things ramp up ahead of Memorial Day weekend,” which marks the start of the summer driving season.

Read: Baker Hughes data show U.S. oil-drilling rigs up a second week

A lack of “a material bullish catalyst,” combined with disappointing refining data and concerns about the “still raging outbreak of COVID-19 in India,” prevented oil from breaking out to new 2021 highs, said Richey.

WTI settled at $ 66.08 on Wednesday, the highest since March 5, when prices finished at their highest since April 2019.

On Friday, June gasoline RBM21, +1.34% rose 1.5% to $ 2.13 a gallon, ending less than half a cent lower for the week. June heating oil HOM21, +1.71% added 1.8% at $ 2.04 a gallon, for a weekly rise of 1.3%.

Read: U.S. retail gas prices top $ 3 a gallon for the first time in over 6 years

June natural gas NGM21, -0.24% settled at $ 2.96 per million British thermal units, down 0.4% Friday. Prices ended 0.1% higher for the week.