Oil falls as pipeline outage weighs on U.S. Gulf Coast refinery runs

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Oil prices fell on Tuesday as the prospect of the main U.S. East Coast gasoline pipeline remaining shut for the rest of this week led some U.S. Gulf Coast refiners to cut output, denting their appetite for crude.

 

U.S. West Texas Intermediate (WTI) crude futures fell 72 cents, or 1.1%, to $64.20 a barrel, after gaining 2 cents on Monday.

 

Brent crude futures dropped 66 cents, or 1%, to $67.67 a barrel, after climbing 4 cents on Monday.

 

Colonial Pipeline, which transports more than 2.5 million barrels per day (bpd) of gasoline, diesel and jet fuel, shut down its network on Friday after being hit by a cyberattack.

 

“It’s quite possible we’ll see reduced crude oil demand. Some refineries in Texas have already scaled back runs because of the pipeline being out,” said Lachlan Shaw, National Australia Bank’s head of commodity research.

 

“That will weigh on crude oil prices pretty obviously, even though parts of the pipeline are restarting and Colonial is expecting the pipeline to be back to capacity by the weekend.”

 

Colonial said on Monday it aims to resume full operations by the end of this week. The outage, however, has already led Motiva Enterprises LLC to shut two of three crude units at its 607,000 bpd Port Arthur refinery in Texas, the largest in the United States.

 

Total SE also cut gasoline output on Monday at its 225,500 bpd Port Arthur refinery due to the pipeline outage.

 

The benchmark U.S. gasoline futures contract, which spiked after the outage, has now retreated to pre-Friday levels on the prospect of the restart. On Tuesday, the contract was down 0.6% at $2.1212 a gallon.

 

On the positive side for crude, analysts are expecting data to show U.S. crude inventories fell by about 2.3 million barrels in the week to May 7, following an 8 million-barrel drop the previous week, according to a Reuters poll.

 

Gasoline stocks are expected to have fallen by about 400,000 barrels, six analysts estimated on average ahead of reports from the American Petroleum Institute industry group on Tuesday and the U.S. Energy Information Administration on Wednesday.

 

The month of May promises to be a ground-breaking one for Big Oil.

 

Oil and gas majors on both sides of the Atlantic are preparing to hold their annual shareholder meetings in the coming weeks. It comes at a time when the world’s largest corporate emitters are under immense pressure to set short, medium and long-term emissions targets that are consistent with the Paris Agreement.

 

At present, not a single oil and gas company is aligned with Paris-consistent emission reduction targets or investment levels more than five years after the landmark climate accord was ratified by nearly 200 countries. The agreement is widely recognized as critically important to avoid an irreversible climate crisis.

 

Norway’s Equinor and U.S. oil producer ConocoPhillips will hold their respective annual shareholder meetings on Tuesday. The annual general meetings of the U.K.’s BP and U.S. refiner Phillips 66 will take place on Wednesday, with U.S. oil major Chevron due to hold its AGM on May 26.

 

In a first for the industry, Anglo-Dutch oil giant Royal Dutch Shell will put its own net-zero transition plan to its shareholders on May 18. The so-called advisory vote, while non-binding, is likely to be closely monitored by those inside and outside the energy sector amid deepening concern about the industry’s stubborn dependency on fossil fuels.

 

Dutch group Follow This, a small activist investor with stakes in a number of Big Oil companies, is due to put forward a separate motion at Shell’s AGM, urging investors to leverage their agency and vote with them to compel the firm to urgently change course.

 

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