CPP Market Volatility in PADD 3
Sept. 27, 2024
Hurricanes and other severe weather disruptions could halt offshore crude production as well as refinery runs, ultimately impacting tanker demand for both oil imports and exports. Hurricanes serve as one of the key downside risks for US Gulf refineries to shut or reduce their runs, tightening US’s product balances and limiting available exports. In tandem with the seasonal maintenance in Spring and Fall, we saw PADD 3 refinery utilization sharply reduced month-over-month by 11.5% in Sep 2017 (Hurricane Harvey), 3.1% in Aug 2020 (Hurricane Laura) and 6.9% in Sep 2021 (Hurricane Ida). However, despite notable storms in the US Gulf this season, major impacts have been focused on offshore crude production in the GoM. PADD 3 Refinery runs in 2024 (red line in the left chart) has been trending slightly above the 5-year averages during the Mar-Aug period. We remain cautious on any further hurricane impacts as the season usually ends by the end of October.
Aside from hurricanes, planned and unexpected outages serve as another crucial factor on CPP tanker freight rates in the USG-Carib market. Power outages shutdown BP’s 435,000 b/d Whiting Refinery in Jan/Feb this year, which brought average PADD 3 refinery utilization sharply dropped to close to 80%. MR2 benchmark TC14 (USG>UKC) freight simultaneously underperformed compared TC2 (MR2 UKC>USAC), the benchmark trade for the other side of the Atlantic. Moving to Oct-Nov months, we anticipate seasonal maintenances to negatively impact refinery utilization% and freight outlooks for both TC2 and TC14, before the so-called “Winter Market” impact kicks in.
Figure 1: PADD 3 Refinery Utilization Figure 2: CPP Freight Rates
Source: McQuilling Services; EIA
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