The Houston area continues its recovery from Hurricane Harvey, which devastated the Texas Gulf Coast with record rainfall and massive flooding. The US government is working to approve a relief package of $15.25 billion, while individuals and organizations around the country are raising millions of dollars for the cause. Texas Governor Greg Abbott announced that the final cost of reconstruction from Harvey could reach $180 billion.
Meanwhile Hurricane Harvey’s impact on diesel prices continues to evolve. The chart above shows the spot market price differential for NY ultra-low sulfur diesel (ULSD) – used as a national benchmark for the commodity price of diesel fuel – as well as the corresponding gasoline price movements for comparison. National diesel spot prices remained steady through the beginning of the storm and gradually ramped up to a 20¢/gallon premium when Harvey hit the Houston area. These benchmark prices have remained in the 15-20¢/gallon premium range following the initial impact. Gasoline prices presented much more volatile behavior, peaking at a premium of nearly 60¢/gallon during Harvey’s landfall and compressing down to 40.53¢/gallon as of September 7th.
The recovery efforts in the Houston area also extend to the refining sector. Production of refined products was reduced by roughly five million barrels per day – 25-30 percent of overall US capacity – at the height of Harvey’s impact. The number of effected refineries grew to 20, ranging from reduced run rates to full outages. The move back to full capacity is ongoing, with the table on the next page reflecting the most up-to-date information available. At current estimates, disrupted refining capacity is near 3.0 mmbd with an anticipated reduction to roughly 2 mmbd of outage by the end of the weekend.
*Please note that the value indicated is an estimate of refining capacity at full utilization and not the amount reduced during Harvey.
Hurricane Irma – currently a Category 4 storm north of Cuba – is set to make landfall in Southern Florida on Sunday morning. The current projections have Irma moving directly up the middle of Florida, eventually weakening to a Category 1 hurricane on Monday morning before dissipating by the middle of next week around Tennessee and Kentucky. Hurricane Irma has moved through the Caribbean as a category 5 storm, devastating many of the northeastern Caribbean Islands with winds up to 185mph. Irma is still producing winds exceeding 150mph as it moves towards the United States.
Hurricane Irma will make landfall as the country continues to recover from the impacts of Hurricane Harvey. The map on the following page shows the impacts to diesel market prices between August 22nd – before Harvey made its first landfall – and September 8th. The Southeastern US is clearly showing the largest price impact, with state average pricing exceeding 10¢/gallon movement beyond the significant movements at a national level. The cost premium experienced in this region is directly related to the reduced amount of product supply, as the refinery outages mentioned in the Hurricane Harvey section above led to lower flow rates on the Colonial Pipeline system – the main means of product distribution for the region.
The state of Florida, on the other hand, is not directly connected to this refined product pipeline and therefore relies on imports of gasoline and diesel via marine shipments from the Gulf Coast and other countries. Hurricane Harvey closed Houston ports and idled refineries in the region, limiting Florida’s fuel supply available through marine terminals while also reducing the availability of fuel from truckload movements into the state. Hurricane Irma will likely close important marine terminals for fuel imports, while at the same time driving up product demand as Floridians evacuate inland to avoid the storm. As a result, reports of strained fuel supplies or shortages across the state will ultimately drive further price premiums in the region, and make procurement of fuel more challenging by region.
For more information on this event, or on the fuel market in general, please contact Daniel Cullen, Vice President of Advisory Services, at Daniel.Cullen@breakthroughfuel.com.