As the US recovers from a devastating series of hurricanes, S&P Global Platts editors Caroline Knight and Daron Jones discuss with Joel Hanley the storms' impact on the jet fuel markets both there and in Europe.
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Joel Hanley: Hello and welcome to the Platts Global Oil Markets podcast for September 18, 2017. I'm Joel Hanley. Now of course many of us have been watching the hurricane season in the US with great interest as hurricanes Harvey, Irma, Jose and Katia, and various other alphabetically-named winds, storm the US Gulf Coast. And, one of the main impacts that we've seen of course is in refined product cracks and refined products movements from Europe over to the US. And, today to discuss this phenomenon, I'm joined in London by Caroline Knight who is our lead jet fuel reporter and her counterpart over in Houston is Daron Jones who joins us now on the line (now. So Caroline can I start with you: I mentioned there have been some interesting price movements but also shipping movements. There are certain diversions and trade flows that have changed as a result of the hurricane season in the US.
Caroline Knight: Yes, in the in the wake of Hurricane Harvey, there was a real price spike in the US and refineries closed and the infrastructure shut down as well which meant that the region needed resupply, and it chose Europe and, what we started to see was a very, very rare occurrence of vessels being fixed from Northwest Europe to head trans-Atlantic to North America and Central America as well. Now, that slowed slightly but traders are still seeing in the aftermath of -- as you mentioned -- these storms and hurricanes, traders are still seeing a number of vessels being diverted, not necessarily leaving from Northwest Europe, but being diverted from their original destination.
JH: And, the typical trade flow that we're seeing is from the Arab Gulf over to Europe. Is this is European refined product going to the US, or is it stuff delivered from Kuwait and places like that?
CK: Absolutely, it's generally volumes diverted from the Middle East, and sometimes India, that would usually be heading into Europe, but it's actually deciding they can get a better price over in in the US.
JH: Right, and Daron over in the US, what kind of impact have you seen your end; and obviously you and various parts of the Platts team were displaced by all of this and we our own contingency plans in place, thankfully, but what has this meant in the market since for you guys over there?
Daron Jones: Well, on our end it was really a storm -- you had Harvey first and that killed demand of course for thousands of flight cancellations -- but more importantly, as Caroline alluded to, it totally disrupted supply from the hub of jet fuel in the US to US Gulf Coast, and you had Colonial Pipeline shut down, which carries jet and distillates and gasoline, all the way up to the Atlantic Coast and New York Harbor. You also had the Midcon starved of jet because Explorer Pipeline was shut down; and then you had the barges that take jet distillates, gasoline down to Latin America, because all the ports were closed. So, you disrupted supply from the three main hubs and needless to say their differentials went crazy, we were seeing debts at levels not seen since 2008 with Hurricane Ike. And then two weeks later we get hit again and this time up the Florida Trail -- up the East Coast -- with Irma, and there was supply disruption there, but obviously another big-time demand disruption: again thousands of flights canceled or rerouted and that affects all areas of the United States, not just where the storm hits, but it's been interesting to see in the two weeks between how the differentials have been fighting to come down, especially in the Gulf and the Atlantic Coast, trying to find their pretty strong levels, and they're almost there now.
JH: And what kind of price impact has there been? I mean you mentioned the differentials, are they way off historic highs?
DJ: Yes, like I said, especially in the Atlantic Coast it just went crazy. Up to 42 cents over the NYMEX USD contract, which is what it bases against. Like I said, that's a high since 2008 from Hurricane Ike. And the problem with the Atlantic Coast New York Harbor area, in particular, is it was supply-starved before the storms even hit, so it was already supplied-starved. That made the problems with the storms show much worse, so it shot up way higher than the Gulf did, and it's been slower to come down than the Gulf has.
JH: Right, we're certainly seeing similar across all the refined products in Europe, well most of them certainly. There's been something of a spike, as you can imagine as gasoline was drawn over to the US Atlantic Coast, particularly; and now those numbers are relaxing again, but they certainly hit interesting highs. On the price front, Caroline in Europe, and also maybe a bit of an outlook as well: are prices settling a bit now and what's the general outlook?
CK: Prices have more than settled. In the space of about two and a half weeks, prices almost halved. They hit more than a year low and a lot of that is down to the fact that the US is starting to come back online; the vessels that were fixed have left Europe. There's one, as Daron said, you know, New York Harbor is really looking for product and we have a vessel going from Rotterdam to New York Harbor, the Hafnia Adamello. ?? Alkmar is going to Mexico and there are a couple of others heading that way from Northwest Europe. But aside from that, there are a few that are diverting, as we said before, but arrivals into Europe are still pretty high, pretty healthy, which means prices have really come off and it just means that traders are now looking: do they continue to move stuff again across the Atlantic, but I think it's unlikely now, what with facilities coming back online.
JH: Right. although of course, the great unknown is the the next cycle of hurricanes that could head your way, Daron. I mean, what's the outlook for you guys over there?
DJ: Well, a couple of interesting things to watch out for coming up here in the US: Colonial Pipeline, which we talked about, because it's the main thoroughfare for all distillates and gasoline, they have filed to change a minimum batch size from 25,000 barrels to 15,000 barrels. And, they've been trying to do this for two plus years but it's come to the point now where the Federal Energy Regulatory Commission here in the US needs to make a ruling by October 15, or Colonial is just going to push this change into effect, and, like I said that will change the batch size that people trade here, so it could have huge effects on price; will have an effect on our Market On Close assessment process. We'll have to change the batch sizes if people start to go to 15, so a lot of eyes on maps. The other interesting things going on in the US: coming up here in Q4 will be Seattle ??. It's been a market that has been assessed flat to Los Angeles for years but it has recently started to separate itself. So, eyes are turned to the Pacific Northwest, here, to see what's going to develop out of that situation.
JH: That's interesting: why is the Seattle jet market picking up so much? Why's that separated from that Californian market that we expected it to stay a bit closer to?
DJ: Well, what happened was there are four major refineries up there. One of those refiners decided to switch all of its jet contracts going forward from summer this year, on, to instead of pricing off of Los Angeles, off of Seattle. And, that took effect, and then we started seeing positions in the spot market there where we never had before. So, those two things are linked: draw your own conclusions and we'll see what happens from here price-wise.
JH: That's great. Thanks very much for that insight Daron, sounds very interesting. And, thank you also, Caroline, for joining us in London today. So, that's all we have time for. If you are interested in this and other stories, then please do log onto a website at Platts.com, where you'll find more on this story and analysis in other commodity markets. Thank you.