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Futures Movers: Oil prices mixed as traders eye gasoline demand and Colonial Pipeline developments

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Oil futures traded on a mixed note Tuesday with parts of the U.S. suffering from some fuel shortages as Colonial Pipeline works to restore the system that provides 45% of the fuel consumed on the U.S. East Coast by the end of the week.

Crude prices have been seesawing between modest losses and gains during the session, pressured in part by the “realization that the pipeline won’t be closed for long,” said Matthew Parry, head of long-term analysis at Energy Aspects.

The Colonial Pipeline system was shutdown late last week following a cyberattack, and has led to some fuel shortages in the Eastern U.S..

“Some refineries in Louisiana and eastern Texas that ship the majority of their output by the pipeline are likely to trim crude runs by up to 20% for a few days to manage inventories, while the pipeline is unable to receive oil products,” Parry told MarketWatch.

However, “given the limited duration of any run cuts and still comfortable levels of oil product inventories in the U.S., the attack may not produce a significant increase in oil product futures prices if the duration of the outage is short lived,” he said.  

Colonial on Monday said its goal was to “substantially” restore operations by the end of the week. Colonial closed its 5,500 mile pipeline over the weekend following the ransomware attack.

Read: Here’s what the Colonial Pipeline cyberattack means for energy markets

West Texas Intermediate crude for June delivery
CL00,
+0.42%

CLM21,
+0.42%

was up 6 cents, or 0.1%, to $64.98 a barrel on the New York Mercantile Exchange. July Brent crude
BRN00,
+0.25%

BRNN21,
+0.25%
,
the global benchmark, shed 5 cents, or nearly 0.1%, to $68.27 a barrel on ICE Futures Europe.

Gasoline futures were under pressure, with the June contract
RBM21,
+0.13%

down 0.4% at $2.13 a gallon.

Meanwhile, the pipeline shutdown has stoked a spike in demand for gasoline, with some stations from Florida to Virginia running low or out of fuel, according to Patrick De Haan, analyst at Gas Buddy, on Twitter:

Read: Some gas stations in U.S. Southeast running out of fuel as Colonial works to restore pipeline service

Also see: Will the Colonial Pipeline outage hike gas prices? It all depends on where you live

Some analysts argued that the weakness in the energy complex had more to do with a selloff in risk assets generally, including global equity markets led by technology stocks, which was outweighing a number of supply-related concerns in the oil market.

“Despite the ongoing problems with the Colonial pipeline, a key U.S. pipeline for oil products, violent conflicts in Israel that frequently drive up the risk premium, and a fire at the world’s second-largest oil field in Kuwait, one of the world’s leading oil exporters, oil prices have fallen,” wrote Eugen Weinberg, analyst at Commerzbank.

A fire at Kuwait’s largest oil field on Monday injured two workers, but didn’t affect production, news reports said.

The market action “was chiefly due to the shift in sentiment on the stock markets, which have come under increasing pressure — presumably because of concerns about inflation,” Weinberg said. “However, because the market normally looks for fundamental factors to explain price fluctuations, fears of the pandemic’s impact in Asia, talks between Iran and Saudi Arabia, and the upcoming relaunch of the Colonial pipeline are being cited as possible reasons.”

The Organization of the Petroleum Exporting Countries on Tuesday left its forecast for global oil-demand growth for 2021 unchanged, while trimming its outlook for non-OPEC production.

Overall, as far as near-term oil prices are concerned “most traders are focused on developments in the physical markets that are keeping a lid on prompt month prices,” said Troy Vincent, market analyst at DTN.

In the U.S., an “extremely disappointing” unemployment report last week is weighing on demand optimism, while this week Motiva’s idling of crude distillation units at Port Arthur due to the pipeline outage are “clearly weighing on immediate crude demand,” he told MarketWatch.

“Already extremely strong refined fuel shipments en route to the East Coast have helped keep a lid on product prices in the wake of the Colonial outage,” said Vincent. And on the other side of the world, “Chinese crude imports are dropping sharply for a second consecutive month, while Singapore, Malaysia, and India are all suffering from COVID setbacks.”

Rounding out action on Nymex Tuesday, prices for June heating oil
HOM21,
+0.88%

rose 0.5% to $2.03 a gallon. June natural gas
NGM21,
+0.68%

was little changed at $2.93 per million British thermal units.

In a monthly report released Tuesday, the Energy Information Administration’s forecasts for U.S. and global benchmark oil prices were little changed for this year, but a bit higher for 2022. The EIA forecast this year’s West Texas Intermediate crude prices at an average $58.91 a barrel and Brent crude at $62.26. It raised its forecasts for WTI and Brent by 0.4% each, to $56.99 and $60.74, respectively.

The EIA raised its forecasts for gasoline prices by 0.8% to $2.68 a gallon for this year and by 0.2% to $2.59 for next year. It said it expects U.S. gasoline consumption to average almost 9.0 million barrels per day this summer, referring to the April to September period. That’s 1.2 million barrels per day more than last summer, but still almost 600,000 barrels per day less than summer 2019.

On Wednesday, the government agency will issue its weekly data on petroleum supplies. On average, analysts expect crude supplies to post a fall of 4.1 million barrels for the week ended May 7, according to a survey conducted by S&P Global Platts. They also forecast a supply increase of 700,000 barrels for gasoline and a 2 million-barrel decline for distillate inventories.

Futures Movers: Oil prices fall as traders eye gasoline demand and Colonial Pipeline developments

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