The Colonial Pipeline outage, much like every other event in recent history, has turned into another jumping off point for every person and organization looking to push an agenda. Political infighting and blame games have led some to blame the lack of fuel availability on the current presidential administration. Others are trying to draw unfounded parallels to the 1970’s oil crisis caused by an OPEC embargo. Those with investments in renewables and green energy are using the opportunity to remind us that this sort of thing would not be a problem if only we drove electric vehicles.
In both the press and social media, hype and hysteria have seemingly won the day – once again. Former Director of the National Economic Council, Larry Kudlow, was on the national news on Tuesday saying that, “If Continental can’t get back into business by Friday, experts tell me all bloody hell is going to break loose. You’re talking about the electric grid, you’re talking about no supplies in the gasoline stations. You could also be talking about schools, and banks, and law firms and office buildings. They basically have until Friday.” Not only are Continental Resources and Colonial Pipeline two very different companies, but our electric grid is no way dependent on refined fuels. This sort of anti-factual fear mongering is the exact opposite of what people need to hear in the depths of any sort of disaster.
Given that the Colonial Pipeline only serves a very distinct portion of the U.S. refined fuels market, what should first be communicated to the public is that this outage is an isolated incident only affecting particular cities and states. Furthermore, it should be noted that if under completely normal circumstances with a fully operational Colonial Pipeline, if everyone in a city rushes out to buy refined fuels at the same time, retail stations will undoubtedly run out of fuel at the pumps. Retail supply availability always depends on a normal and steady rate of demand, even under normal pipeline supply conditions. Panic buying unnecessarily creates outages which creates more panic. In the vast majority of the U.S., this pipeline outage is no threat to refined fuel supply and the only risk of a temporary retail station shortage is a result of irrational panic buying.
The market-based solution to preventing such retail station outages is for retail fuel stations to materially increase the price of fuels so as to reduce demand from marginal users while enticing shippers to deliver fresh supplies from neighboring states. Unfortunately, so called price gouging laws prevent fuel retailers from being able to implement this market-based solution. With retail prices largely unable to reflect the localized short-term supply disruption, and with public messaging overwhelmingly focused on panic and fear, panic buying and outages follow.
Here at DTN, we believe it is the duty of those with the knowledge and data needed to accurately assess market disruptions to play their part in helping snuff out the fear that creates this panicked behavior. Many folks in the downstream refined products market are working tirelessly to supply the affected markets in this tumultuous time, and the more accurate and honest the assessment and communication of the supply disruption can be, the more quickly life can get back to normal for us all.
What the data is telling us
On that note, let us now dive into what our proprietary Refined Fuels Demand data – which measures refined fuels liftings at the wholesale distribution terminals in real time – can tell us about the market. The weekly volatility in this data, which you will see below, reflects the weekly seasonality of refined fuel liftings and deliveries from wholesale terminals to retails fuel stations. As such, you will see large drops in volumes on Sundays and holidays as many fuel truckers have the day off and then the gradual rise in demand through the week as retail stations are refilled following weekend or holiday retail demand.
First, looking at the entire PADD1 or East Coast market, we can see that PADD1 A (New England) is showing gasoline demand at the wholesale terminals surging to begin the week. This reflects gasoline availability in the subregion allowing for both replenishing of supplies at retail stations within the area, as well as truckers being tasked with making longer haul deliveries from PADD1 A further south down the coast.
PADD1 B (Central Atlantic) gasoline liftings from the wholesale terminals are at their highest on our records and up 37% week-on-week. This indicates that storage in the subregion is sufficient to meet normal deliveries to local retail fuel stations as well as to supply neighboring PADD1 C.
PADD1 C (Lower Atlantic), is seeing gasoline liftings down 10% from normal levels. This indicates lack of availability from wholesale storage due to the lack of deliveries from the Colonial outage.
The states with the largest percent of retail station outages in the U.S. are currently North Carolina, South Carolina, Virginia, and Georgia. Fuel availability in each city and state at the current time is not only dependent on the relative degree of panic buying taking place in each geography, but is also dependent on the unique infrastructure constraints of each geography as it relates to storage capacity and alternative means of supply. Let’s investigate what wholesale gasoline liftings are telling us about each of these markets.
Fuel demand in Virginia
In Virginia, it is clear that the largest fuel markets in the state are suffering due to lack of wholesale fuel supply. In the Norfolk market, gasoline liftings from the wholesale terminals are down 25% week-on-week.
In the Richmond market, the weakness is even more clear, as liftings are turning lower at midweek instead of heading higher as we would see under normal supply conditions. Richmond is seeing gasoline liftings from the wholesale terminals down 26% week-on-week.
Fuel demand in North Carolina
Similarly, in North Carolina, both of the largest fuel markets in the state are seeing significant weakness in liftings from the wholesale terminals. In Charlotte, wholesale gasoline liftings are down 21% week-on-week.
In Raleigh, the lack of wholesale gasoline availability is extremely pronounced. Gasoline liftings are plummeting moving through the week – now down to just one-tenth of their normal volumes. This speaks to a severe shortage of gasoline in wholesale storage.
Fuel demand in South Carolina
In South Carolina, the variability in gasoline supply from wholesale storage at various cities is extremely pronounced. In North Augusta, South Carolina – which is part of the Augusta, Georgia Metropolitan Area – gasoline liftings from wholesale terminals are dropping sharply as we move through the week and are now down 27% week-on-week.
Meanwhile, gasoline liftings from wholesale terminals in Charleston are shooting through the roof – now more than double week-ago levels. This reflects greater supply at storage facilities in Charleston and the pull from this larger storage capacity to not only refill retail fuel stations in Charleston, but also in cities within servicing distance by tanker trucks.
Fuel demand in Georgia
In Georgia, we see a similar, although less drastic development. In Macon, gasoline liftings from wholesale terminals are down 24% week-on-week, indicating supply shortages at the storage facilities.
However, in Atlanta, the gasoline storage situation is starkly different, allowing for more normal liftings of gasoline from the wholesale terminals. Gasoline liftings from wholesale terminals in Atlanta are up 17% week-on-week. Once again, this not only likely reflects an effort to refill local retail stations that have seen runs on supplies amid panic buying, but also an effort to refill more distant cities that lack storage capacity.
Additional states with fuel demand impacts
While states like Alabama, Louisiana, Mississippi, Florida, and parts of Tennessee are also experiencing retail station shortages in some localized areas, the outages seen at both the retail and wholesale level pale in comparison to those described in the states above. With abundant supplies from local refineries in Texas and Louisiana, gasoline liftings from wholesale terminals in the PADD3 (Gulf Coast) region are shooting higher as truckers work to deliver gasoline both locally and to states outside of their normal servicing routes. Gasoline liftings from wholesale terminals in the Gulf Coast region are now their highest since the pre-COVID-19 panic that ensued in March of last year and are up 17% week-on-week.
With this pipeline outage expected to be a very temporary event – and one that is more akin to the great toilet paper shortage of 2020 than the oil embargo of 1973 – we all have a small part to play in ensuring those that need products the most have available supply. Here at DTN, we work to deliver operational intelligence to the market by providing information on where supply constraints exist through our Refined Fuels Demand data. We do this so that those working hard in the downstream sector can more efficiently quell the thirst of the panic buyers and keep vital infrastructure operational even in times of temporary disruptions.