The tanker market will register trade flow changes as a result of Tropical Storm Harvey striking the prime energy hub in the US, according to Drewry consultancy.
As an immediate consequence, Drewry foresees increased gasoline imports to the USAC from Europe, due to a gasoline shortage in the domestic market, leading to firm MR rates on the TC2 route. Refined product exports from the USG will halt and trade partners of the world’s largest net-exporter will need to find alternative suppliers in the short-term.
As it is known, energy infrastructure and port terminals in the USG have been shut down and evacuated since 24 August. As of 28 August:
- 19% of oil production and 18% of the natural gas production of the US were shut down
- all six refineries in the Corpus Christi area and four refineries in the Houston/Galveston area were shut down
- a combined refining capacity of 2.2 mbpd, which constitutes 43.2% of the overall Texas Gulf coast refining capacity, and 11.8% of the country’s refining capacity, has been taken offline
- 10 oil and gas terminals have also been closed
- however, the Louisiana Offshore Oil Port (LOOP), a major oil import terminals, is largely unaffected
It is noted that, if the refineries take more than a week to resume their normal operations, crude imports will take a hit, which in turn will hurt the rates for larger crude tankers. However, the impact on the tanker market will be offset to a certain extent by an increase in the US crude exports. Prolonged refinery outages will lead to an increase in the crude inventory and reduce prices in the domestic market. This will open the arbitrage window to export crude from the USG, supporting Aframax rates.
The diesel exports to Europe and Latin America will be stalled for a few weeks until the refineries are up and running. The MRs, which were principally employed in transporting refined products from the USG to Latin America, will also take a hit due to reduced exports.
Overall, the product tankers exporting refined products from the USG will see reduced employment and a dip in freight rates for a few weeks before the export-oriented refineries in southern Texas resume their normal operations.
However, if the damages are severe and refineries take time to come back online, the importers of the US products will tap into other distant markets to fulfill their requirement. For example, Latin American countries might turn to Europe and the Far East for gasoline requirements. Similarly, Europe might have to depend on Asian suppliers for diesel. This will increase the tonne-mile demand and support the product tanker rates.
On the other hand, the United States Atlantic Coast (USAC) is dependent on imports from Europe and the USG to meet its gasoline demand. With the supply disruptions in the USG and resultant tight supply, we expect a drawdown of inventories and an increase in the arbitrage trade from Europe. Thus, MR rates on the transatlantic TC2 route (North West EuropeUSAC) could become firm in the short term.
Of course, Drewry notes that it expects no long-term material impact on the trade of crude oil and refined products, as the oil rigs in the Gulf of Mexico, refineries, ports and terminals will resume their normal operations in a week. Also, it does not expect any material changes in the supply demand dynamics of tankers in the long run.