Houston, 31 October (Argus) — Massive Hurricane Sandy has come and gone, but US east coast markets will likely see major demand destruction for refined clean products, and a Deutsche Bank report today warned gasoline and jet fuel demand were the most affected after previous storms rolled across the region in years past.
Historical figures show that gasoline demand posted month-over-month declines of more than triple the five-year average demand change, while jet fuel demand sank more than double that average during Hurricane Irene in August 2011 and Hurricane Gloria of September 1985, Deutsche Bank analysts said.
“With so much of the densely populated eastern region affected by the storm and still lacking power, demand is expected to slip in the immediate aftermath,” they wrote.
JP Morgan analysts said flight cancellations and airport closures will take a big bite out of jet fuel demand.
“The reduction in oil demand caused by Hurricane Sandy will likely extend for at least several more days. While we expect diesel demand to get some boost due to auxiliary power generation and recovery efforts, jet fuel demand is likely to struggle for several weeks,” they said.
The investment bank estimates that directly impacted airports in the storm account for about 220,000 b/d of jet fuel demand, with lesser affected airports accounting for an additional 22,000 b/d. Cancelled flights to and from the east coast would crater about 120,000 b/d of what would have been jet fuel demand in other parts of the US, Europe and Asia.
Jet fuel demand in the wake of last year's Hurricane Irene fell about 3mn bl, JP Morgan said, noting that Irene was far less severe than Sandy.
“With demand losses exceeding total local production by upwards of a factor of six, the turbulence caused by Sandy in jet markets will continue to wash more through distribution and storage channels, rather than adjustments in refinery operations,” the JP Morgan analysts said. “Spot jet prices are vulnerable to further declines, and the weaker east coast jet market is likely to weigh in turn on Gulf coast jet differentials, as the Gulf coast supplies roughly 500,000 b/d of jet fuel to the east coast.”
Phil Flynn, analyst at Price Futures Group, echoed the sentiment, noting that the east coast normally consumes more than 3.1mn b/d of gasoline.
“The east coast is not about refining, but more about imports and gasoline blending and distribution. If you just focus on when the refineries come back on line you may miss the bigger picture. This may prove to be the biggest demand destruction event in US history,” Flynn said.
Power returned to Phillips 66's 250,000 b/d Bayway refinery in Linden, New Jersey, but the facility was partially flooded during the category 1 storm and damage assessments continue today. Most of the region's other refiners weathered the storm with little trouble and were ramping up operations.
But the Colonial pipeline system that carries refined products from US Gulf coast facilities to markets up and down the Atlantic coast, and multiple New York Harbor terminals, remains hampered for now. The company's Line 03 mainline, which moves transportation fuels from Greensboro, North Carolina, to the New York Harbor has no timeline for a restart. That's because even if power can be restored, many harbor storage terminals and racks for distributing fuels are damaged. Terminal operators Kinder Morgan, IMTT, Motiva, NuStar and others continue to assess their damage.
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