Atlantic Hurricane season to bring turmoil in tanker markets


Another Hurricane season is fast approaching with all predictions pointing towards grave weather conditions, possible even more serious than last year's events. According to the latest report from Mcquilling Services, "on May 23, NOAA that during the 2013 Hurricane Season, which begins on June 1 and ends on November 30, there is the possibility of: 
•    13-20 named storms (winds of 39 mph or higher), of these:
•    7 to 11 might reach hurricane stage (winds of 74 mph or higher), including:
•    Up to 5 major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher)
All of these storm categories are well above the seasonal average of 12 named, 6 hurricanes and 3 category major hurricanes" it said.  
As per the report, "naturally, the first concern with low pressure systems developing in the Atlantic is the potential danger they pose to coastal regions. Government contingency plans to evacuate residents and protect infrastructure are constantly evolving. However, hurricanes can also wreak havoc on the tanker and petroleum markets through damaged infrastructure and the knock-on effect to delivery methods. Following Superstorm Sandy, distribution channels ranging from ports to pipeline pumps to power outages at filling stations resulted in a temporary shortage of petroleum products on the Eastern Seaboard. At regional ports, discharge terminals were shut down due to a range of factors from floating debris to sensitive gauges being exposed to corrosive seawater".
According to Mcquilling, "although the severity and impact of any natural disaster is impossible to project, from a fundamental perspective the nation’s “emergency kit” appears to be in order. Data from the Energy Information Administration shows that at just shy of 395 million barrels, crude oil inventories are at one of the highest levels on record.  At the same time, domestic crude oil field production is hovering around a 20 year high of 7.2 million b/d, based on February figures. This could help mitigate a short term disruption to crude oil imports.  
After executing deep turnarounds at the end of the first and at the start of the second quarter, refinery utilization has rebounded to an average of 87.4% of capacity in recent weeks. This is providing a cushion for petroleum products. Nationally, gasoline inventories have remained above the average of the last five years since the start of April and are presently 10% above year-ago levels", Mcquilling Services said.
It added that "on top of the rising inventories, US gasoline demand averaged about 8.5 million b/d over the last four weeks, some 800,000 b/d lower than the same time in 2008.  The EIA expects that consumption levels are expected to be 8.87 b/d, during the driving season representing a roughly 20,000 b/d contraction year-on-year.  This fall in consumption can be attributed to rising fuel efficiency of the nation’s automobile fleet as highway travel across the nation is forecast to rise by 0.3% compared to 2012. 
Moving the focus to the Northeast, which absorbs about 85% of US gasoline imports, inflows have been on the rise.  During the last four weeks, PADD 1 offloaded some 710,000 b/d of gasoline compared to the year-to-date average of 590,000 b/d. This was mainly the result of the favorable economics of RBOB futures contracts compared to their European counterpart. These inflows, combined with weaker demand in the region, which has posted a contraction of almost 2% compared to the first three months of 2013, have boosted PADD 1 gasoline stocks to about 18% above year ago levels. These factors, combined with less attractive economics are likely to limit gasoline import demand in the short term" it noted.
Mcquilling Services concluded by noting that "in regards to infrastructure improvements, reports to date hint that most concentration has placed been on emergency planning rather than physical additions. Furthermore, State and Federal governments are keen to utilize the available options in the most effective manner. Needless to say, no one wants to test lessons learned from last year’s storm activity or how much has been learned. News headlines this summer will ideally contain stories of an improving economy with low pressure formations assigned to the back pages. Given the current US commercial inventories, crude oil production and refinery utilization the market appears to be prepared for the upcoming Hurricane Season, but just like students preparing for their final exams, no one wants to be tested".