Hurricane Harvey Hits Here?

Hurricane Harvey hit the Gulf Coast with a vengeance on August 25th, delivering the largest single storm amount of rainfall in the continental USA, ever. We have all seen the devastation and misery inflicted upon the residents of southeast Texas, and our hearts go out to them. If you wish to help fellow Americans in need, make sure you do so effectively and intelligently. See what Consumer Reports or other sources you trust have to say about giving before you break out your checkbook. But once we get past our sympathies, we have to begin to wonder – Will this disaster have any impact on me, or on my business?

The answer is yes, most definitely.

We are all used to seeing above-average rainfall in parts of the Midwest after a named storm system inflicts its mayhem in the gulf area, then meanders along a northeasterly path toward us. But we should expect more than just rain to fall out as a result of Harvey. The Gulf Coast holds about a third of the nation’s refining capacity, and serves as a critically important nexus of America’s “energy superhighway system.” In normal times, crude comes in, refined products go out, either to international markets or other regions of the USA.

But with port operations interrupted, a situation that the US Coast Guard says may take weeks to resolve before shipping channels are safe for large ships and tankers, crude oil destined for import to the USA has no way to enter via its most common port of entry. Therefore, we will see a temporary glut of oil available to the global markets, even though we might face a shortfall in the US due to interrupted infrastructure. More importantly, disrupted refinery operations will generate upward pressure on refined product pricing nationwide, most immediately impacting fuel and plastic resin pricing.

Resin producers have been building a stockpile, which should shield buyers from supply interruptions, but they have been pushing price increases at the same time. Expect more emphasis on price increases, regardless of inventories, resulting from constrained production due to Harvey. Coupled with resin producer maintenance shutdowns, this could be a strong supporting element for producers to keep prices elevated for a significant period.

Likewise, fuel prices are already jumping in the Midwest as a result of Harvey’s impact in the Gulf. So long as gulf region refining capacity remains offline, and pipelines from the Gulf area to other regions of the country operate under capacity, anticipate fuel costs to remain elevated and transportation companies to perhaps begin leveling fuel surcharges.

In summary…

  • Harvey will impact crude and refined petroleum products for a significant, but unknown period
  • Crude Oil and Refined Product pricing will be thrown out of sync, depressing global Crude Oil pricing but pushing refined product pricing higher in the USA
  • Expect costs for transportation to increase, and don’t be surprised if suppliers attempt freight surcharges due to increasing fuel prices
  • Monitor refining capacity nationally, and refining capacity utilization regionally to be prepared to push back on surcharge attempts lasting longer than might be justified
  • Harvey will embolden plastic resin producers to push for increased pricing, and will sustain their efforts

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Posted by John Hattery in Trends

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