Texas Pipe Shutdown Roils U.S. Oil And Products Markets

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Pipe Shutdown Roils U.S. Oil And Products Markets

By KERM YERMAN

A shutdown of the Houston-to- Chicago Explorer Pipeline, the second largest products line in the U.S., has caused a hefty regional imbalance in refined products that is roiling U.S. cash markets for gasolines, distillates, and domestic crude oil East of the Rockies.

The Explorer, which ran up to 700,000 barrels per day of products between Houston and Tulsa, and 350,000 barrels per day between Tulsa and Chicago, was completely shut down March 10 after a gasoline leak was detected near Greenville, Texas the night before. The company said Tuesday it hopes the line can be repaired and restarted by the end of this week, but traders are skeptical: Explorer had originally predicted a swift restart by March 12 or 13.

"Not knowing when they'll come back up is playing havoc in the markets," said one products trader based in Houston, Texas.

So far the Explorer shutdown has crushed cash prices for gasolines and distillates in the Gulf, where the Midwest-bound product is being tied up, and boosted prices in Chicago and Group Three, which is not recieving its anticipated deliveries.

In the Gulf, for example, cash prices for regular gasoline have dropped roughly 5.00 cents a gallon to 87 cents a gallon on the cash market since late last week, while heating oil dropped about 3.00 cents to 72.50 cents a gallon.

The weakness accompanies a consistent slide in Gulf differentials to the benchmark New York Mercantile Exchange (NYMEX) futures, where crude oil and products futures have been for the most part stable over the past several trading days.

In the Midwest, the reverse is true, with product differentials to the NYMEX surging, particularly for distillates, which are in low stock in the region.

Low sulphur diesel, for example, a hot item for farmers ahead of spring planting season, has jumped roughly 5.00 cents in relation to the NYMEX, with jet fuel is mirroring the move. Gasoline, which had been in high stock in the Midwest, however, has yet to feel any supply pinch.

More indirectly, the Explorer Pipeline shutdown has left deep impressions on the domestic cash crude oil market, where Texas refiners are selling off barrels because of the products backlog. Crude oil is the main feedstock for refined products, but with an already glutted products market in the Gulf Coast, refiners in the region don't require the oil.

The main sweet domestic crude, Light Louisiana Sweet, for example, dropped about 40 cents Tuesday to talk at 85/90 cents weaker than benchmark WTI/Cushing, with traders attributing the loss to Explorer.

"Crude is building up very rapidly," said one domestic oil trader. "And the easiest barrel to chuck is the domestic barrel," the trader explained.

Meanwhile, deliveries of oil along the Seaway Pipeline from the Gulf to the Midwest are mostly fully scheduled until April, allowing little immediate recourse to domestic oil's weakness.

"We're just keeping an eye on Explorer's restart," said one trader. Explorer Sees Pipeline Repairs Done Early Weds, May Be Back Up Weds Afternoon

Explorer Pipeline Co. said Tuesday that its 700,000 barrel per day (bpd) Houston-to-Chicago products line could restart as early as Wednesday afternoon, pending Texas Department of Transportation (DOT) approval.

"Best case scenario, we could be back up tomorrow afternoon," said an Explorer spokesman. "Worst case, Thursday, Friday or beyond." The spokesman said repairs on the pipeline, the second largest products line in the United States, should be completed by Wednesday morning.

The pipeline was completely shut down on March 10 after a leak was discovered the previous night near Greenville, Texas. Explorer said that the broken section of the pipe had been removed Tuesday and the the new piece will be welded in by Wednesday morning.

"At that point, we'll be awaiting DOT approval of our start-up plan," the spokesman said. "We've been working very well with the DOT so far, and expect to continue to do so."

Explorer had originally predicted the pipeline would be restarted by March 12 or 13, but work to repair the pipeline had been delayed by the clean-up of the leaked gasoline.

Eight companies make up the Tulsa-based Explorer consortium including Chevron Corp , Petroleos de Venezuela SA's Citgo Petroleum Co unit, Conoco Inc , USX-Marathon Group's Marathon Oil Co unit, Phillips Petroleum Co , Royal Dutch Shell Group's and Texaco's joint venture Equilon Enterprises, Texaco Inc. and Sunoco Inc. .

http://www.canoe.ca/MoneyOil/mw_oilnews10.html



-- Carl Jenkins (Somewherepress@aol.com), March 15, 2000


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