Hurricane Michael Diesel Market Impact | Advisor Pulse

Hurricane Michael Strengthens Before Florida Landfall with Limited Diesel Price Implications

Hurricane Michael is set to make landfall near Panama City, Florida early this afternoon.  Michael has strengthened to a Category 4 storm, with winds that could push to 150 miles per hour.  Following landfall, Michael’s current trajectory will move through Georgia and into the Carolinas.  Mandatory evacuation orders across the Florida panhandle have led to thousands of residents clearing from the path of the what is predicted to be the strongest storm the area has seen in decades, with overall damage forecasts ranging from $10 to $20 billion.

From an energy perspective, news of a hurricane moving through the Gulf of Mexico may put many on edge, due to the notable presence of oil and refinery infrastructure in the region.  September 2017 provided an example of the potential devastation to the energy sector that a storm in the Gulf could bring, as Hurricane Harvey impacted nearly 30 percent of US refining capacity, ultimately causing significant price premiums for diesel and gasoline at a national level.  The strength of Michael will certainly bring significant damage from high winds, storm surge, and flooding; however, the path of the storm remains well east of major refineries in the region and is not anticipated to have a lasting impact to offshore oil platforms.  This means that diesel price impacts will be limited, as depicted in the chart below which shows diesel wholesale prices for states in Hurricane Michael’s path declining compared to national price movements in the days leading up to landfall.

Hurricane Michael is the second storm in the past month to bring historic-level destruction to areas of the Southeastern United States.  As the Breakthrough team presented at the Mercury Group in August – the annual collaborative event for Breakthrough clients – the prevalence of such powerful events is more than just a coincidence.  The graphic below shows the number of billion-dollar storms in the United States per year, CPI-adjusted, with a clear increase of occurrences within the last decade.  This trend brings greater uncertainty to the supply chains and energy spend of shippers, with the magnitude varying based on the type of event and region impacted.