Among the tragedy that is the latest Hurricane Harvey, which has hit the US over the past few days, owners of product tankers are bound to exploit the benefits. In its latest weekly report, Allied Shipbroking said that “in the aftermath of Hurricane Harvey, one of the worst disasters to hit Texas, we are now looking to get a clearer picture of the possible disruptions the extensive flooding may have brought down with it. Days before the hurricane hit the US coast we were already hearing of an anticipation of strong short-term effects to descend on the crude oil and oil products markets. The downward pressure on crude oil was already being witnessed days in advance, with the closure of 10 key refineries in the Gulf Coast with a capacity to refine about 2 million barrels of oil a day and accounting for 11% of the U.S. total refining capacity.

According to Allied’s George Lazaridis, Head of Market Research & Asset Valuations, “outages were not limited to just oil refineries with a 10% of oil production from the U.S. Gulf of Mexico being taken out of active operation (around 150,000 barrels per day) along with a number of inland crude oil producers (around 1.4 million barrels per day from the Eagle Ford shale basin) and closing ports all along the Texas coast. The extent of the total damages recorded will take days to properly assess, however as things stand now the temporary disruptions have already caused significant effects on the market. The biggest gains so far have been noted in the oil products markets, with the significant cuts in output bringing in a higher demand for commodities such as gasoline (with gasoline futures jumping as much as 7% reaching their highest level in more than two years) as the drop in supply has left many to scramble for new sources. The Continent has already started to note an upsurge in demand and created a respective kick -up in freight rates in the region”.

Lazaridis said that “product tankers have already started to see a significant amount of strengthening and given that these disruptions are likely to push for longer haul trades to strengthen it should also boost the overall supply/demand balance. Things have not been as positive on the crude oil trade, with the closure of refineries in the U.S. having also caused a drop in demand for shipments of crude oil. The slight positive gains having been noted in terms of prices for crude oil can mainly be attributed to the cutting back in production, though if this is to show face in the shipping markets it will likely be take the form of improved seaborne trade at a latter point in the year as the U.S. looks to restock any strategic reserves it decides to use up during the next couple of weeks”.

Allied’s analyst added that “for the moment it seems as though the September program for most main exporting regions has remained stable and has shown little appetite for change, leaving crude oil tankers still struggling with the relatively sub-par rates that are being seen in the market now. The disruption in port operations has also been the cause for subdued activity being seen in the region over the past couple of days, while it has also taken out some fixing volume from other regions as charterers take a wait and see stance before placing any new orders they may had planned beforehand. The closure of ports surely was the cause for large delays in operations, causing in turn a percentage of the fleet for several sectors to be taken out of action. Given that the hurricane is still causing disruption on the U.S. coast, it is still too early to tell the final influence this major natural disaster will play on the market”, the shipbroker concluded.