Prolonged US pipeline closure the wildcard for product tanker owners

After a weekend of outages, the Colonial Pipeline operator said on Monday it expects to “substantially restore operational service” by the end of the week. Despite this vote of confidence, traders have booked at least six tankers to ship gasoline from Europe to the US. Although the products tanker market is oversupplied, it remains tight as non-eco MR spot rates for the TC2 route jumped by 90% on the news yesterday.

As of Monday, Colonial Pipeline announced that it had resumed operations on several smaller lines between terminals and delivery points, but that its mainlines remain offline. Line 1 delivers gasoline from Pasadena, Texas and Line 2 is responsible for diesel and jet fuel. The lines travel through the southern US states up to Greensboro, North Carolina before feeding an additional line that carries 900,000 barrels per day of fuel to New Jersey.

Anomalous events can have outsized impacts on the psychology and momentum of shipping markets

Traders are reportedly seeking vessels to ship gasoline that would otherwise have been shipped on the pipeline. Some tankers are also being secured to store gasoline at the US Gulf, in the event of a prolonged shutdown. Valero has chartered the Nave Titan for products storage at the Gulf Coast.

The federal government could opt to temporarily waive the Jones Act to increase the number of available tankers, resulting in some traders temporarily storing gasoline on tankers in the US Gulf Coast in the case of a multi-week or prolonged shortage.

The US administration has already declared a state of emergency allowing for increased trucking of fuels in 17 states by permitting drivers to travel between fuel distributors and for longer hours.

According to researchers at Jefferies gasoline stocks in southeastern states were already at a near five-year low as the pipeline shut down, hit by a Russian ransomware attack.

“We believe a temporary disruption would be positive for Kirby on the inland and coastal transport markets while a prolonged disruption would benefit foreign-flag products tanker companies such as Scorpio and Ardmore as more imports of fuel would be demanded,” Jefferies stated in a note to clients.

“As always, anomalous events can have outsized impacts on the psychology and momentum of shipping markets, and this shutdown is no exception, but the end-result impacts tend to be fleeting depending on the duration of the disruption,” Evercore ISI stated in a tanker update.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
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