Energy Markets Trying To Figure Out Potential Impacts Of A Major Hurricane
It’s already been a volatile week of trading and it’s only Tuesday morning. Equity markets around the world are being roiled by trade concerns and rising interest rates, while energy markets are trying to figure out the potential impacts of a major hurricane and refinery fire.
After dropping nearly 2% to start the week, refined products rallied back to positive levels as news broke of an explosion and fire at Irving Oil’s 320mb/day refinery in St. John New Brunswick, Canada’s largest refinery, which is a major supplier of gasoline and diesel to the East Coast.
It’s unclear yet what impact that may have on fuel supplies and prices as it’s still unclear which units were effected, and how long they may be out of service. New York harbor basis values largely shrugged off the news since the largest units at the plant were already off-line for scheduled maintenance.
As the charts below show, New England (PADD 1A) may see the most impact from any downtime at the Irving refinery given its proximity to the refinery, relatively small size (only 7% of total PADD 1 gasoline stocks) and starting inventory levels that are within their seasonal range, albeit at the top end. PADDs 1B & 1C meanwhile are well above their previous 5 year ranges for gasoline inventories, and given their larger total capacity, which could explain the muted reaction in the NY Harbor trading hub.
While the East Coast of Canada was dealing with the shock of a major refinery issue, Western Canadian crude oil prices traded down to the $30/barrel mark for the first time since December 2016 as refinery maintenance in the US and a lack of pipeline capacity forces prices to record discounts of nearly $45/barrel to WTI and $55 less than Brent. For perspective, the last time WCS was trading at $30, WTI was at $44 and Brent was at $45, compared to $74 and $85 today.
Hurricane Michael is now a Category 2 storm, and is expected to become a Category 3 storm before making landfall along the Florida panhandle Wednesday. While several off-shore oil rigs have been evacuated as a precaution as the storm nears, its path keeps it far enough east that it should not have a lasting impact on energy supply infrastructure. The storm could have a larger impact on demand as it targets Florida, Georgia, and perhaps some areas of the Carolinas still recovering from Hurricane Florence.
The IEA continued with its series of analytical reports focusing on “blind spots” in the global energy system with a report on renewables Monday. The report estimated that renewables would account for 40% of total global energy consumption growth in the next 5 years, and while Solar capacity will see the largest increases, biofuels will remain the largest segment of renewable energy supply.