Colonial Line 1 Outage and Choked East Coast Gasoline Market Resulted in Record Stock Changes, Supply Imbalances, and Regional Rally

Due to a leak detected near Birmingham, AL, Colonial Pipeline Line 1 was placed out of service between September 9 and September 21, with implications felt regionally and worldwide.

Gasoline stocks in the Lower Atlantic region plunged as a result, recording a record-setting 6 million barrel draw from 28 million to 22 million barrels. This 21% change outstripped the previous record draw of 2.9 million set in June, 2003 and the shock was felt across the whole East Coast (PADD 1).

Alabama’s Pipe Problem Caused Gasoline Markets to Freak

Source: FuelFix

Gasoline imports from Northwest and Southern Europe helped soften the East Coast drawdown. Gulf Coast (PADD 3) inventories meanwhile swelled by a record 4.8 million barrels.

Alabama’s Pipe Problem Caused Gasoline Markets to Freak

Source: FuelFix

Along with a weakening dollar encouraged by soft economic data and the Fed’s meeting, the speed of these inventory changes shocked the market, mid-September.

Colonial restored operations on September 21 by installing a 500 foot above-ground bypass around the affected section. East Coast stocks subsequently rebounded by Friday last week, indicating that resupply is reaching the region. In addition to inventories, the Lower Atlantic has been supplied with gasoline through Colonial Line 2, normally used for distillate fuel.

Colonial Line 1 a Lifeline for Refinery-Starved East Coast

While the high demand Lower Atlantic region (PADD, 1C) lacks any refining capacity, the Gulf Coast holds roughly half of the nation’s total. The Gulf Coast also maintains the country’s largest inventory of motor gasoline, holding nearly 35% of the national total (79 million barrels) as of September 9.

Along with gasoline exports to Latin Mexico, Venezuela, Colombia, Panama, and Brazil, this helped absorb the backup in the Gulf Coast.

Line 1 is a major source of gasoline supply for the East Coast region, able to transport 1.4 million barrels per day from Houston to Greensboro, North Carolina. Motor gasoline shipments between the Gulf Coast and East Coast are the largest regional movement of petroleum products in the United States.

Pipe Problem Caused Gasoline Markets to Freak

The result: a regional gasoline inventory and supply situation that ClipperData described as like pressing on a balloon: push one side down and the other swells up.

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