S&P Global Platts Analytics Oil Spotlight
Hurricane Florence update: threat to East Coast supply, but demand hit too
Hurricane Florence is on track to make landfall Friday morning, near Wilmington (NC) as potentially a category 4 storm. The storm could have significant implications on oil markets through potential supply outages on the Colonial and Plantation product pipeline system, which runs from the US Gulf Coast (USGC) to the North East and is crucial to PADD1 oil products supply.
In fact, the area from Georgia to New York Harbor (NYH) has an aggregate consumption of gasoline, diesel, jet fuel, and LPG of nearly 4 MMB/D. Colonial and Plantation supply the majority of those volumes. In terms of products breakdown, gasoline accounts for 2.56 MMB/D, or 65% of consumption, while diesel is another 920 MB/D or 23%.
Over the past 15 years, hurricanes in PADD1 and PADD3 have generated significant declines in oil demand in the 4 weeks after landfall. Just limiting the calculation to gasoline, diesel and jet, the average impact has been 200 MB/D in both PADDs in the month following landfall. Including all products, the impact has been 310 MB/D on average in the month following landfall. After one or two months, demand usually returns to normal levels. However, even accounting for expected demand loss in the immediate hurricane aftermath, clean fuels demand of probably around 3.8 MMB/D will need to be supplied in the weeks following the hurricane.
This raises the key question about potential pipeline shutdowns. If Colonial and/or Plantation pipelines experience outages as a result of the hurricane, then inventories will draw in the areas downstream of the pipeline shutdown (likely in lower and mid-Atlantic), and build in those upstream of the shutdown (USGC). So far, lower and Mid-Atlantic gasoline stocks are well supplied, but distillates stocks are already short (see charts). A shutdown will inevitably widen the spread between USGC and NYH gasoline and distillates prices, with distillates likely to see the biggest impact.
We will continue to monitor this storm and issue Spotlight and CNA as the situation evolves.