Gasoline Prices Hit $3 as Shortages Grow on Pipeline Outage

(Bloomberg) -- Gasoline stations and terminals from Florida to New Jersey are running dry as shortages worsen five days into the shutdown of the biggest U.S. fuel pipeline.

As the Colonial Pipeline system -- hit by a cyberattack and forced to shut on May 7 -- struggles to recover, fuel terminals are being drained. In parts of the U.S. South, three in every four gas stations have run dry, while in Washington, D.C., cars are lined up for blocks as they wait to fill up. U.S. pump prices have topped $3 a gallon for the first time in six years.

“The situation completely changed overnight,” said Gary Kandola, chief financial officer at Express Fuel Distributors Corp., which supplies gas stations in New Jersey and Pennsylvania. “They have people coming in from Virginia, Maryland” to acquire fuel.

President Joe Biden said on Wednesday that he expects Colonial Pipeline will have “good news” to share in the next 24 hours. The pipeline operator previously said it expects to reach a decision midweek on whether it can begin the process of restarting its network of pipelines that transport gasoline, diesel and jet fuel from the Houston area to North Carolina and up the East Coast.

The escalating disruption underscores just how vulnerable America’s fuel supply system has become in the wake of increased attacks on energy infrastructure by hackers over the past few years. The fuel shortage is also adding to growing inflationary pressures that have spurred rallies in commodity prices from timber to copper this month.

The White House has so far announced several measures to blunt the growing crisis, including fuel waivers and additional weight limits for some trucks. It is also taking initial steps that could permit foreign tankers to transport gasoline and diesel to East Coast ports.

“Colonial has announced that they’re working toward full restoration by the end of this week, but we are not taking any chances,” Transportation Secretary Pete Buttigieg said at a daily White House briefing on Wednesday. “Our top priority now is getting fuel to communities that need it, and we will continue doing everything that we can to meet that goal in the coming days.”

The Biden administration will give a House briefing on the cyberattack at 6 p.m. Washington time.

Colonial each day normally ships about 2.5 million barrels (105 million gallons), an amount that exceeds the entire oil consumption of Germany. The company has only managed to restart a small segment of the pipeline as a stopgap measure. Even when full service is restored, it will take about two weeks for gasoline stored in Houston to reach East Coast filling stations.

About 65% of stations in North Carolina are without fuel and at least 40% in Virginia and Georgia, according to retail-tracker GasBuddy on Wednesday. Three distribution hubs in Pennsylvania have run dry and long lines of tanker trucks are forming at terminals in New Jersey. New Jersey Governor Phil Murphy said Wednesday the state does not have a supply issue.

Two of the nation’s largest truck-stop owners --- Love’s Travel Stops & Country Stores Inc. and TravelCenters of America Inc. -- confirmed that fuel is scarce in some states. Both companies said they’re taking extraordinary measures to replenish tanks.

Convenience store chain Circle K, Couche-Tard’s global brand, is also seeing some disruption to fuel deliveries in the U.S., with a number of outages in affected areas, mainly in the southeast, according to a company statement on Wednesday.

Meanwhile, most Gulf Coast refineries are expected to trim output with supplies seen backing up in the nation’s oil-refining nexus. Much of the cuts may be shouldered by refineries from Port Arthur, Texas, and eastward. At least one refinery each in Texas and Louisiana already reduced production.

As the outage drags on, traders are booking larger vessels that can send more fuel from the Middle East and Asia west to destinations such as the U.S. East Coast, according to shipbrokers and fixtures data compiled by Bloomberg.

The Biden administration issued an order on Sunday extending the amount of time truck drivers can spend behind the wheel when transporting fuel across 17 states and the District of Columbia. On Tuesday evening, the Transportation Department said 10 states could allow heavier-than-normal truck loads of gasoline and other fuels.

Federal transportation regulators also took the first step toward waiving the 101-year-old Jones Act that prohibits foreign-flagged and -staffed ships from hauling products from one U.S. port to another.

”The Department of Homeland Security is standing ready to review any requests for a temporary waiver of the Jones Act from companies that demonstrate that there’s not sufficient capacity on Jones Act-qualified vessels to carry specific shipments of fuel in and around the region,” Buttigieg said on Wednesday. He declined to speak to “any specific waiver requests going on right now.”

The Environmental Protection Agency moved to allow the sale of gasoline that doesn’t satisfy requirements meant to help combat smog in certain areas. An initial order allowed the sale of conventional gasoline in areas where reformulated gasoline is required across Maryland, Pennsylvania, Virginia and the District of Columbia. A second order went further by waiving low-volatility requirements governing conventional and reformulated gasoline in those areas, as well as nine other states.

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