Potential Hurricane Season Volatility
June 14, 2024
The US is forecasted to have an above-average 2024 Atlantic hurricane season starting June 1st with a near-record number of storms. Hurricanes serve as one of the key downside risks for US Gulf refineries to shut or reduce their runs, tighten US’s product balances and limit the available exports. Alongside the seasonal maintenance in Spring and Fall, we saw PADD 3 refinery utilization shapely reduced month-over-month by 11.5% in Sep 2017 (Hurricane Harvey), 3.1% in Aug 2020 (Hurricane Laura) and 6.9% in Sep 2021 (Hurricane Ida). These hurricanes have also put a halt on crude and gas productions (especially productions at offshore platforms) and resulted in significant port and lightering delays as well as demurrage charges.
A volatile hurricane season this year will also notably impact tanker freight rates. Due to the weather and refinery maintenances in Aug-Oct, runs could be further cut and significantly reduce the export volume; we foresee heavier-than-usual downward pressure on TC14 (MR2 USG>UKC) rates. Meanwhile, the still strong end-of-summer demand but domestic production cut could push prices up in the US Atlantic Coast and open arbs to import CPP from Europe – supporting TC2 (MR2 UKC>USAC) rates.
Figure 1: PADD 3 Refinery Utilization Figure 2: TC2 and TC14 CPP Rates
Source: McQuilling Services, EIA
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