The shutdown of the largest U.S. gasoline pipeline is causing already high fuel supplies to grow in Houston and is lowering prices in some Gulf Coast states.
Shipments from a segment of Colonial Pipeline's Line 1 that transports 1.3 million barrels a day of fuel from the U.S. Gulf Coast to Greensboro, N.C., were halted Friday after a 1,000-barrel spill in Alabama.
The company expects to complete the restart of the line over the weekend, according to a notice to shippers. Some gasoline volumes will be pumped on Line 2, a segment of the system that typically hauls diesel fuel.
The supply interruption comes at a time when East Coast gasoline inventories are hovering 10 million barrels above the five-year average, according to government data.
Shipments to New York Harbor will now back up on the Gulf Coast, easing the East Coast glut, according to Mark Broadbent, senior North American refining research analyst at Wood Mackenzie. The excess in Houston will likely be moved by ship to Latin America, he said.
"It's more attractive to refiners, if they're going to ship it on the water, to send it to a Latin American country," Broadbent said.
As supplies get stopped up in Houston, the price of conventional unfinished gasoline has plunged in the Gulf Coast relative to New York, opening the arbitrage to the Northeast. Prices in New York Harbor now carry a premium of 9.75 cent a gallon relative to Houston, the highest level in four months.
The average national retail price of a gallon of gasoline Wednesday was $2.18. In Arkansas, the average price was $2 per gallon. Gasoline prices in Texas on Wednesday averaged $1.98, and in New York, the average was $2.32 per gallon, according to AAA.
The contract price for benchmark U.S. crude fell $1.32 to $43.58 a barrel in New York on Wednesday. The price fell 3 percent Tuesday.
Oil prices have fluctuated since rallying in August amid speculation the Organization of Petroleum Exporting Countries and Russia would agree on measures to stabilize the market at a meeting later this month. Record output from OPEC's Gulf members is compounding the global glut, which will last into next year, the International Energy Agency said Tuesday. The agency last month predicted the market would return to equilibrium this year.
The spill coincided with the annual seasonal transition to winter-grade gasoline that evaporates more easily when temperatures plunge in winter months and engines are harder to heat up. Colonial said gasoline shipments with three different grade levels will be commingled to ease the startup of certain pipeline segments.
"The commingled product will not arrive at deliveries prior to September 16th and will not create any compliance issues," Colonial said in its notice.
Information for this article was contributed by Mark Shenk of Bloomberg News.
Business on 09/15/2016