Oil pipelines hike rates by a record as ‘red hot’ inflation bites

The cost of moving oil on pipelines crisscrossing the US is surging by the most ever as operators pass on higher business expenses to their customers. 

Shippers who haven’t signed contracts will see rates jump by an all-time high of 13.3% after “red-hot inflation” last year, while the increase will vary for customers with contracts, consulting firm East Daley Analytics said in a note to clients. The tariffs, which are based on an annual adjustment from US regulators, are rising by a record for the second year in a row.

“We anticipate a portion of these hikes will ultimately impact prices at the pump and be passed on to consumers, but doubtful they will significantly impact refining runs”, according to AJ O’Donnell, East Daley’s director of equity research. He said that while transport costs are important, they pale in comparison to economic factors such as interest rates, which would have a more meaningful impact on refining and distribution of fuels.  

Skyrocketing pipeline rates reflect a broader trend of higher costs across the energy industry. Wages for US oil workers hit a record in April, even as paycheck growth eased in other sectors. Prices for equipment and materials have also climbed. 

Pipeline operators are adjusting rates depending on the commodity and type of service, with natural gas liquids and refined products bearing the brunt of the increases. Competitive corridors like the route from West Texas’s Permian Basin to the Gulf Coast are offering shippers the biggest break. 

We anticipate a portion of these hikes will ultimately impact prices at the pump and be passed on to consumers, but doubtful they will significantly impact refining runs. Transportation costs, although important, are a small factor in the refining and distribution equation. I expect overall economic health (interest rates, inflation, job market) will have a much more meaningful impact.