The ability of US Gulf Coast refiners to bounce back after Hurricane Harvey has been noteworthy. Despite a once-in-a-century storm that knocked the region’s refinery throughput to as little as 60%, last week’s utilization of approximately 85% has fueled speculation that we could soon see the return of the low- to mid-90% range. The key question from an overall market (i.e. wellhead to pump) perspective is whether or not any of this product is making its way to consumers in a similarly recovered fashion. Navarik Data confirms that based on our proprietary forward-looking data set of validated inspection nominations, shipping disruptions in the Atlantic induced by Harvey and later Irma and Maria appear to have partially but not completely recovered.
Consider scheduled distillates and gasoline/gasoline components exports from PADD 3 to Europe. We consider this trade flow on the basis that it is between two regions which both generally speaking have ample well-maintained and well-managed refining capacity. Hence, comparing the changes in the flows out of PADD 3 to Europe, we can see to what extent marketers and traders are foregoing shipments of key consumer fuels to Europe in favour of sending to other markets that don’t have the refining capacity to locally match supply and demand at reasonable market prices. Put another way, if marketers have swapped shipments to non-European destinations, this means that the price premiums in these alternative markets remain attractive enough to absorb PADD 3’s export bill. (Note that for ease of comparison, we use the same quarterly change methodology we used in last week’s Vessel Verified)
When comparing the change in distillates exports to Europe between this time last quarter and present, the three-week export outlook is roughly equal to the change in the three-week export outlook for all distillates exports. It is not likely that this is caused by an over-representation of European distillates imports in the overall share of PADD 3 distillates exports, since the major destinations of PADD 3 distillates exports are to Central and South America. We therefore suggest that this suggests that Gulf Coast refining and trading activity has tentatively normalized to their standard proportions, even if in terms of volumes, they remain low. To what extent this constitutes a recovery in PADD 3 exports is unclear; there is undeniably less product to move with refinery throughput some 10% less than its recent highs, but the mix of destinations is approximately regular. Conversely, the story for three-week forward looking gasoline exports is stronger. Recall that Europe’s relative reliance on gasoline is less than the continental United States. Hence, the fact that marginally more gasoline is slated to move to Europe amid growing overall gasoline exports is reassuring when we consider that just a few short weeks ago we were worried about gasoline shortages in PADD 1 and elsewhere. This suggests that the price premium is expected to ease enough to make it profitable to send gasoline to Europe rather than New York Harbour (indeed, NYMEX RBOB spot prices are down as much 7% week-over-week).
In summary, refinery production is rising, gasoline shortages on the US East Coast appear to be easing, and distillates exports are expected to return to a roughly standard list of destinations even if volumes may remain understandably lower. Hopefully this holds promise for congested PADD 3 ports, tired refinery staff, and nervous oil & gas traders. The long tail of Hurricane Harvey may be shorter and arrive sooner than expected.
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