The Caribbean Islands may be home to a relatively small number of permanent residents, but serve a key purpose in the Atlantic oil and gas market as a storage and forwarding area. We previously addressed the potential effects of Hurricane Maria, and now have an update on the market’s adjustment to the storm. When comparing the barrel counts of PADD 3 refined product exports currently being tracked by Navarik analysts we see that distillates volumes are up and gasoline volumes are down on a quarterly basis. This is true in absolute as well as percentage terms. Moreover, this week we have observed two distillates diversions towards the Caribbean and all of the newly initiated qualifying gasoline cargoes are going to non-Caribbean ports.
Why might this be the case? There are potentially two major trends at play here. First, the Caribbean has a relatively high amount of diesel used in electricity and home heating. In a crisis such as recovering from a Hurricane, it is understandable that this demand would come first. Second, there may still be echo effects of Hurricanes Harvey and Irma. These struck the continental United States, and either took offline a major chunk of refining capacity or consumer demand. Onshore US gasoline prices remain high enough to make imports from PADD 3 unpalatable, or make the market focus of sending PADD 3 gasoline export capacity to meet immediate needs in the ultimate destination country rather than putting them into intermediate shore side storage tanks. As refineries come back up to speed and recovery efforts in the Caribbean proceed and lessen the immediate demands to distillates, expect this spread to narrow.
As with the recovery from Harvey and Irma, it remains an open question as to when the situation normalizes. Navarik Data’s unique dataset of confirmed nominations means that we are able to see – before the market – when these flows return to typical levels.
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