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It’s Too Late To Avoid A Major Oil Supply Crisis

It’s Too Late To Avoid A Major Oil Supply Crisis

The level of capital investment…

Soaring Demand Drives The Oil Prices Rally Higher

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Oil prices continued to rise…

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Oil Markets Stable Despite Major Pipeline Outage

While the Colonial pipeline outage appears to have been resolved and there is enough gasoline to go around, panic buying has caused gasoline shortages in some areas on the East Coast.

Chart of the Week

-    U.S. natural gas production posted the largest monthly decline on record in February, according to recent EIA data.

-    Production averaged 104.8 Bcf/d, an 8.1 Bcf/d decline (7%) from January.

-    Texas accounted for a 4.3-Bcf/d decline, the largest on record.  

Market Movers

-    The UK’s largest asset manager, Legal & General, said that it would back the activist hedge fund’s slate in the ExxonMobil (NYSE: XOM) shareholder meeting later this month. 

-    Motiva Enterprises cut production at its refinery by 45% because of the Colonial Pipeline outage. Total (NYSE: TOT) reduced output by 25% at its Port Arthur refinery. 

-    EQT (NYSE: EQT) announced the sale of $1 billion in debt to finance its takeover of Alta Resources Development

Tuesday, May 11, 2021 

Oil prices eased on Tuesday as some resolution to the Colonial pipeline outage came within sight. “As most operational service is expected to be restored by the end of this week, traders have removed yesterday’s price premiums, realizing there are enough commercial gasoline stocks to tide over the currently expected duration of the crisis,” Rystad Energy said in a statement. But gasoline shortages were starting to emerge due to panic-buying.

Colonial Pipeline outage fallout. The Colonial Pipeline carries gasoline from Texas to the Northeast, delivering 45% of the East Coast’s gasoline supply. The ransomware outage has left the pipeline offline for days. The Biden administration declared an emergency, which opened up a few paths to ease the bottleneck. “Colonial Pipeline is ultimately the jugular of the U.S. pipeline system. It’s the most significant, successful attack on energy infrastructure we know of in the United States.” 

Related: Oil And Gas Rig Count Climbs Amid Price Rally

Colonial outage and rerouted gasoline flows. A record-high amount of gasoline from the Mideast is being rerouted to the U.S., and European gasoline is also likely heading for the East Coast. “With the loss of Colonial's roughly 1.5 million b/d plus of gasoline, inventories will reach 5-year lows (52.4 million barrels seen in October 2017) after 8 days of outages,” Platts Analytics said, referring to Atlantic Coast inventories.

Gas stations running out of fuel. Some gasoline stations on the East Coast are starting to run out of fuel. An estimated 7 percent of gas stations in Virginia were out of fuel as of late Monday, according to GasBuddy analyst Patrick DeHaan.

Oil industry adds jobs. In March, the U.S. oil and gas industry added 12,000 jobs, the largest monthly gain in 30 years. 

OPEC’s production increases. OPEC’s crude oil production is estimated to have increased to a three-month high of 24.96 million barrels per day (bpd) in April, thanks to a major jump in Iran’s output.

China shuns Australian LNG. At least two Chinese importers of LNG were told by the government to stop importing gas from Australia, another casualty in the two countries’ worsening trade spat. 

Colorado drillers merge. Bonanza Creek Energy (NYSE: BCEI) and Extraction Oil & Gas (NASDAQ: XOG) announced plans to combine into a company valued at around $2.3 billion. The two companies will together become the largest pure-play driller in Colorado’s Denver-Julesburg Basin. The combined company will be renamed Civitas Resources Inc.

Dutch government grants $2.4 billion in subsidies for carbon capture. The Dutch government has granted a consortium that includes Royal Dutch Shell (NYSE: RDS.A) and ExxonMobil (NYSE: XOM) $2.4 billion in subsidies for what is set to become one of the largest carbon capture and storage projects in the world.

Rystad: Oil majors run out of reserves in 15 years. The proven reserves of the oil majors declined by 15% last year, and the remaining reserves are on track to run out in 15 years, according to Rystad Energy. “The task is becoming more and more challenging as investments in exploration shrink and success rates slump,” Rystad said.

Indian refiners cut output. Due to the drop in demand from the pandemic, India’s refiners have trimmed processing. Indian Oil Corp, the country’s largest refiner, reduced runs to about 85-88% capacity. "We do not anticipate that our crude processing would be reduced to last year's level of 65%-70% as inter-state vehicle movement is still there ... (the) economy is functioning," a company official told Reuters.

Related Video: Massive American Pipeline Shut Down in Cyber Attack

Jet fuel demand remains down. Long-haul flights are not returning anytime soon, so jet fuel demand could average around 5.8 mb/d in 2021, up 30% from 2020, but down from 8 mb/d in 2019, according to FGE. 

Shell announces Gulf of Mexico discovery. Royal Dutch Shell (NYSE: RDS.A) announced a deepwater discovery in the Gulf of Mexico.

Gas flaring declined by 5%. Gas flaring worldwide decreased by 5 percent last year due to lower demand for oil and a knock-on decline in drilling. 

IEA: Renewables surging. In a new report, the IEA said that renewable installations soared to 280 GW globally last year, up 45% from 2019. The strong additions are set to become the “new normal,” the agency said, with renewables accounting for 90% of global electric capacity installations in 2021 and 2022. 

Vitol’s carbon trading surged. Vitol Group’s carbon emissions trading soared by 61% last year, a sign that oil traders are pivoting into carbon trading. 

Shell to get half of energy from clean sources within a decade. Royal Dutch Shell (NYSE: RDS.A) CEO Ben van Beurden said that half of the company’s portfolio will come from clean energy “somewhere in the next decade.”

EVs to be cheaper in every segment in the coming years. EV cars will be cheaper than gasoline and diesel vehicles by 2027, and larger electrified SUVs will be cheaper by 2026, according to BNEF. 

$1.7 trillion in mining needed for energy transition. The mining industry needs to invest $1.7 trillion over the next 15 years to develop enough copper, cobalt, nickel, lithium, and other metals to fuel the energy transition. 

S-curve for renewables. A new report argues that renewable energy is about to enter the steep portion of an S-curve adoption scenario. That is, solar and wind are on the cusp of rapid growth as costs decline and coal gets phased out. 

Qatar plans to dominate LNG. Qatar really means business when it comes to leveraging this cost advantage in global markets. Qatar has put other mid-decade FID’s on notice, that without rock-bottom cost economics their projects may not be competitive.

Vineyard Wind approval expected. The Biden administration is set to give the final approval to the U.S.’ first large-scale offshore wind farm, an 800-megawatt project off the coast of Massachusetts. The project could come online in 2023.

By Josh Owens for Oilprice.com 

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