Biggest Winners of Hacked U.S. Pipeline Lie Beyond Borders

The biggest winners from the shutdown of North America’s largest oil products pipeline may be outside U.S borders with Latin American fuel buyers being the top beneficiaries.

Mexico and Brazil, the two-biggest markets for U.S. fuelmakers last year, may be able to import cheaper gasoline and diesel if the Colonial Pipeline remains shut and leaves production stranded at refineries in Texas.

“They’ll have a fire sale on the Gulf Coast,” said Fernando Valle, a New York-based analyst with Bloomberg Intelligence. Refiners need to make room for the ongoing fuel production, creating an incentive to sell the stranded barrels to Mexico, Brazil and Colombia, he said.

Colonial, the nation’s largest conduit of fuel from the U.S. Gulf Coast to East Coast markets, was shut Friday by a ransomware attack. Federal law only permits U.S. flagged vessels to deliver cargoes between domestic ports. American-flagged ships can be more expensive to secure, making it easier for the U.S. refining belt in Texas and Louisiana to export fuel and isolating the East Coast from U.S production in the event of a pipeline shutdown.

Biggest Winners of Hacked U.S. Pipeline Lie Beyond Borders

Inventory space in the Gulf Coast for gasoline and other refined products were already filling up before the pipeline shutdown as refiners were increasing production to meet demand for the summer driving season. With inventory space limited, fuel suppliers have already been seen booking ships in the U.S. Gulf Coast for the purpose of temporarily storing fuel, said people familiar with the matter.

For Latin American importers, the timing couldn’t be better as they slowly start to emerge from lockdowns. If the pipeline shutdown continues, it will ease pressure on Petroleo Brasileiro SA, the state-controlled oil company, to sell fuel locally below international prices to contain inflation. This will allow them to build some cheap inventories, said Valle.

Other beneficiaries of the shutdown may include European refiners, which are already accustomed to sending their excess supply to New York Harbor and could make more inroads into the region, said Alan Gelder, vice president of refining and chemicals at Wood Mackenzie Ltd. To that point, at least four long-range tankers were placed on standby to deliver fuel to the U.S. East Coast if needed.

The Colonial system is being brought back online in steps with the goal of “substantially” restoring service by the end of the week, the Alpharetta, Georgia-based company said.

If the conduit remains down for an extended period of time, it may push retail gasoline prices to their highest in seven years, according to the AAA. While the national average pump price is approaching the $3-a-gallon mark, drivers in Texas may be cushioned from the blow if the shutdown results in a temporary glut at nearby refineries.

©2021 Bloomberg L.P.

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