Oil swings near US$65 as key pipeline fallout spreads; US dollar climbs

Singapore

OIL fluctuated near US$65 a barrel as the US dollar rose and traders tracked the worsening fuel crisis in the US, with swathes of the country facing petrol shortages following the closure of a key pipeline.

West Texas Intermediate was little changed after adding 0.6 per cent on Tuesday. Colonial Pipeline Co will know late on Wednesday whether it's safe to restart its network, which has been halted since a cyberattack late last week.

As the outage drags on, some refiners are being forced to cut runs, while panic-buying by consumers has emptied fuel stations across the East and South. The dollar rose 0.2 per cent, blunting demand for commodities priced in the currency.

Crude has rallied in 2021 as the fightback against the pandemic boosts energy demand, depleting inventories that accumulated after the outbreak erupted last year. The API reported US crude holdings sank 2.53 million barrels last week, according to people familiar with the data, ahead of official figures on Wednesday.

The outage of Colonial Pipeline's system - a vital conduit that connects Gulf Coast refineries with consumers along the East Coast - is causing enormous disruption.

While petrol supplies are running out in some regions, processors are being forced to reduce run rates, cutting crude oil demand. In addition, refiners are booking ships to warehouse growing fuel-product stockpiles.

"Investors are now re-assessing the situation around the pipeline outage after initially thinking a supply disruption would be bullish in the short term," said Will Sungchil Yun, senior commodities analyst at VI Investment Corp in Seoul.

Even if Colonial does manage to restart on Wednesday, it'll take days to fully restore shipments, according to US Energy Secretary Jennifer Granholm.

As part of the administration's effort to ease the growing burden on consumers, regulators have taken a first step towards waiving rules that bar foreign-flagged and -staffed ships from hauling products from one US port to another.

Boding well for crude prices, the Energy Information Administration on Tuesday reduced its forecast for US output through 2022, while the Organization of Petroleum Exporting Countries raised its outlook for the amount of oil that it will need to produce. BLOOMBERG