Oil Swings Near $65 as Pipeline Fallout Spreads, Dollar Climbs

(Bloomberg) -- Oil fluctuated near $65 a barrel as the dollar rose and traders tracked the worsening fuel crisis in the U.S., with swathes of the country facing gasoline shortages following the closure of a key pipeline.

West Texas Intermediate was little changed after adding 0.6% on Tuesday. Colonial Pipeline Co. will know late Wednesday whether it’s safe to restart its network, which has been halted since a cyberattack late last week. As the outage drags on, some refiners are being forced to cut runs, while panic-buying by consumers has emptied fuel stations across the East and South. The dollar rose 0.2%, blunting demand for commodities priced in the currency.

Crude has rallied in 2021 as the fightback against the pandemic boosts energy demand, depleting inventories that accumulated after the outbreak erupted last year. The API reported U.S. crude holdings sank 2.53 million barrels last week, according to people familiar with the data, ahead of official figures Wednesday.

The outage of Colonial Pipeline’s system -- a vital conduit that connects Gulf Coast refineries with consumers along the East Coast -- is causing enormous disruption. While gasoline supplies are running out in some regions, processors are being forced to reduce run rates, cutting crude oil demand. In addition, refiners are booking ships to warehouse growing fuel-product stockpiles.

“Investors are now re-assessing the situation around the pipeline outage after initially thinking a supply disruption would be bullish in the short term,” said Will Sungchil Yun, senior commodities analyst at VI Investment Corp. in Seoul.

Even if Colonial does manage to restart on Wednesday, it’ll take days to fully restore shipments, according to U.S. Energy Secretary Jennifer Granholm. As part of the administration’s effort to ease the growing burden on consumers, regulators have taken a first step toward waiving rules that bar foreign-flagged and -staffed ships from hauling products from one U.S. port to another.

Boding well for crude prices, the Energy Information Administration on Tuesday reduced its forecast for U.S. output through 2022, while the Organization of Petroleum Exporting Countries raised its outlook for the amount of oil that it will need to produce. The International Energy Agency is set to release its monthly report on the global oil market at 10 a.m. in Paris on Wednesday.

Brent’s prompt timespread was steady at 17 cents a barrel in backwardation. While that’s a bullish pattern -- with near-term prices above those further out -- it has steadily fallen in recent sessions, dropping from 41 cents a week ago.

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