Oil futures traded lower Tuesday, with investors looking past the closure of the Colonial Pipeline that provides 45% of the fuel consumed on the U.S. East Coast as the company works to restore service by the end of the week.
“Oil prices are falling as the Colonial Pipeline disruption has all the hallmarks of a short-term glitch,” said Sophie Griffiths, analyst at Oanda, in a note. “Investors have accepted that the pipeline failure is not likely to be an ongoing issue, with a phased restart expected imminently and full operation restored by the end of the week.”
West Texas Intermediate crude for June delivery fell 77 cents, or 1.2%, to $64.15 a barrel on the New York Mercantile Exchange. July Brent crude, the global benchmark, dropped 73 cents, or 1.1%, to $67.59 a barrel on ICE Futures Europe.
Gasoline futures were also under pressure, with the June contract down 0.5% at $2.1226 a gallon.
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 a ransomware attack. Meanwhile, the 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:
"Latest statewide numbers for gas stations without gasoline as of 6am CT according to GasBuddy data. GA 3.3% AL 0.4% TN 0.02% SC 1.5% NC 4.8% FL 2.4% VA 7.6% Note: these numbers may be low as our data stream is only hours old and more updates flow in."
Some analysts argued that the weakness in the energy complex had more to do with a selloff in global equity markets led by technology stocks, which was outweighing a number of supply-related concerns.
“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.